UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Nebraska Book Company, Inc.

(Exact name of registrant as specified in our charter)

Kansas		47-0549819
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4700 South 19^th Street
Lincoln, NE 68501-0529
(Address of principal executive offices)

(402) 421-7300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes þ No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No o (NOTE: Nebraska Book Company, Inc. is a voluntary filer and is not subject to the filing requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934. Although not subject to these filing requirements, Nebraska Book Company, Inc. has filed all reports required under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Market value of the registrant’s voting stock held by non-affiliates of the registrant — Not applicable as registrant’s stock is not publicly traded.

There were 100 shares of common stock outstanding as of June 25, 2010.

DOCUMENTS INCORPORATED BY REFERENCE: None

Total Number of Pages: 105

Exhibit Index: Page 101

 

 

PART I:
Item 1 Business			3
Item 1A Risk Factors			13
Item 2 Properties			18
Item 3 Legal Proceedings			18
Item 4 (Reserved and Removed)			18
PART II:
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			18
Item 6 Selected Financial Data			19
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 7A Quantitative and Qualitative Disclosures about Market Risk			39
Item 8 Financial Statements and Supplementary Data			41
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			80
Item 9A Controls and Procedures			80
Item 9B Other Information			80
PART III:
Item 10 Directors, Executive Officers and Corporate Governance			81
Item 11 Executive Compensation			83
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			92
Item 13 Certain Relationships and Related Transactions, and Director Independence			93
Item 14 Principal Accountant Fees and Services			93
PART IV:
Item 15 Exhibits and Financial Statement Schedule			94
Signatures			99
Supplemental Information to be Furnished			99
Financial Statement Schedule II — Valuation and Qualifying Accounts			100
Exhibit Index			101
Exhibit 10.19
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I.

ITEM 1. BUSINESS.

References in this Annual Report on Form 10-K to the “Company” refer to Nebraska Book Company, Inc., to “NBC” refer to our parent company, NBC Acquisition Corp., and to “we,” “our,” “ours,” and “us” refer collectively to the Company and its subsidiaries, except where otherwise indicated and except where the context requires otherwise.

The Company is the sole wholly-owned subsidiary of NBC. NBC does not conduct significant activities apart from its investment in the Company. Effective July 1, 2002, our distance learning division was separately incorporated under the laws of the State of Delaware as Specialty Books, Inc., a wholly-owned subsidiary of the Company (“Specialty Books”). Effective January 1, 2005, our textbook division was separately formed under the laws of the State of Delaware as NBC Textbooks LLC, a wholly-owned subsidiary of the Company (“Textbook Division”). On May 1, 2006, the Company added another wholly-owned subsidiary through the acquisition of all of the outstanding stock of College Book Stores of America, Inc. (“CBA”), an entity separately formed under the laws of the State of Illinois. On April 24, 2007, the Company established Net Textstore LLC, a wholly-owned subsidiary of ours which was separately formed under the laws of the State of Delaware. Effective January 26, 2009, the Company established Campus Authentic LLC, a wholly-owned subsidiary of ours which was separately incorporated under the laws of the State of Delaware.

On March 4, 2004, Weston Presidio (Weston Presidio Capital III, L.P., Weston Presidio Capital IV, L.P., WPC Entrepreneur Fund, L.P., and WPC Entrepreneur Fund II, L.P.) gained a controlling interest in NBC, and hence in us, through (i) the formation of two new corporations, NBC Holdings Corp. and New NBC Acquisition Corp.; (ii) a $28.2 million equity investment by Weston Presidio in NBC Holdings Corp., funds for which were ultimately paid to NBC in the form of a capital contribution; (iii) Weston Presidio’s purchase of 36,455 shares of NBC’s common stock directly from its holders; (iv) the cancellation of 870,285 shares of NBC’s common stock upon payment by NBC of merger consideration of $180.4 million to the shareholders of record for such shares; (v) the exchange of 397,711 shares of NBC’s common stock for 512,799 shares of New NBC Acquisition Corp. capital stock in the merger of the two entities with NBC as the surviving entity; and (vi) the exchange of 512,799 shares of NBC’s common stock by Weston Presidio and current and former members of management for a like number of shares of NBC Holdings Corp. capital stock. Payment of the $180.4 million of merger consideration was funded through proceeds from the $28.2 million capital contribution, available cash, and proceeds from $405.0 million in new debt financing, of which $261.0 million was used by NBC and us to retire certain debt instruments outstanding at March 4, 2004 or to place funds in escrow for untendered debt instruments called for redemption on March 4, 2004 and redeemed on April 3, 2004. We declared and paid dividends to NBC of $184.3 million to help finance this transaction. Throughout this Annual Report, we generally refer to all of the steps comprising this transaction as the “March 4, 2004 Transaction.”

On April 27, 2004, we filed a Registration Statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) for purposes of registering debt securities to be issued in exchange for the Senior Subordinated Notes arising out of the March 4, 2004 Transaction. The SEC declared such Registration Statement effective on May 7, 2004. All notes were tendered in the offer to exchange which was completed on June 8, 2004.

On October 2, 2009, in conjunction with the completion of our offering of the Senior Secured Notes and payment in full of the Term Loan, we entered into the ABL Credit Agreement which provides for the ABL Facility and replaced the Revolving Credit Facility (collectively the “Refinancing”).

On January 8, 2010 we filed a Registration Statement on Form S-4 with the SEC for purposes of registering debt securities to be issued in exchange for the Senior Secured Notes arising out of the Refinancing. The SEC declared the Registration Statement effective on February 8, 2010. All notes were tendered in the offer to exchange that expired on March 15, 2010.

General

We sell or rent a variety of new and used textbooks and sell general merchandise, such as apparel, general books, sundries and gift items, through our nationwide chain of bookstores on or adjacent to college campuses. We also engage in these activities on the internet through hundreds of websites operated by us as well as numerous third-party websites. We believe we are also one of the largest wholesale distributors of used college textbooks in North America, offering over 105,000 textbook titles and selling over 6.3 million books annually, primarily to bookstores serving campuses located in the United States. We are also a provider of distance education materials to students in nontraditional courses, which include correspondence and corporate education courses. Furthermore, we provide the college bookstore industry with a variety of services including proprietary information and e-commerce systems, in-store promotions, buying programs, and consulting services. With origins dating to 1915 as a single bookstore operation, we have built a consistent reputation for excellence in order fulfillment, shipping performance and customer service.

We entered the wholesale used textbook market following World War II, when the supply of new textbooks could not meet the demand created by the return of ex-GI students. We became a national, rather than a regional, wholesaler of used textbooks as a result of our purchase of The College Book Company of California. During the 1970’s, we continued our focus on the wholesale business. However, realizing the synergies that exist between wholesale operations and college bookstore operations, in the 1980’s, we expanded our efforts in the college bookstore market to primarily operate bookstores on or near larger campuses, typically where the institution-owned college bookstore was contract-managed by a competitor or where we did not have a significant wholesale presence. In the last several fiscal years, we have revised our college bookstore strategy to expand our efforts in the contract-management of institutional bookstores. Today, we service the college bookstore industry through our Bookstore, Textbook, and Complementary Services Divisions.

Bookstore Division. College bookstores are a primary outlet for sales and rental of new and used textbooks to students. We also sell a variety of other merchandise including apparel, general books, sundries, and gift items. In addition to in-store sales, we sell textbooks and other merchandise on the internet through our own bookstores’ websites as well as numerous third-party websites. As of March 31, 2010, we operated 280 college bookstores on or adjacent to college campuses. Of these 280 bookstores, 146 were leased from the educational institution that they served (also referred to as contract-managed) and 134 were owned or leased off-campus bookstores. On May 1, 2006, we acquired 101 college bookstore locations, 98 of which were contract-managed, through the acquisition of all of the outstanding stock of CBA. CBA began providing contract-management services to small to medium-sized colleges and universities nationwide in 1984.

Our college bookstores are located at college campuses of all sizes, including some of the nation’s largest campuses, such as: Miami-Dade College; Arizona State University; Ohio State University; University of Florida; Michigan State University; Texas A&M University; University of Central Florida; Pennsylvania State University; University of Michigan; Florida State University; and University of Arizona. In addition to generating profits, our Bookstore Division provides an exclusive source of used textbooks for sale across our wholesale distribution network.

Textbook Division. We believe we are one of the largest wholesale distributors of used college textbooks in North America. Our Textbook Division consists primarily of selling used textbooks to college bookstores and on the internet through third-party websites, buying them back from students or college bookstores at the end of each school semester and then reselling them to college bookstores and on the internet. We purchase used textbooks from and resell them to college bookstores at college campuses of all sizes, including many of the nation’s largest campuses, such as: University of Virginia; Oregon State University; University of Texas; University of Illinois; University of Washington; University of Southern California; and Long Beach State University. Historically, because the demand for used textbooks has consistently outpaced the supply, Textbook Division sales have been determined primarily by the amount of used textbooks that we could purchase. Our strong relationships with the management of college bookstores nationwide have provided important access to valuable market information regarding the campus-by-campus supply and demand of textbooks, as well as an ability to procure large quantities of a wide variety of textbooks. We provide an internally-developed Buyer’s Guide to our Textbook Division customers. This guide lists details such as author, new copy retail price, and our repurchase price for approximately 52,000 textbook titles.

Complementary Services Division. With our acquisition of Specialty Books in May 1997, we entered the distance education market, which consists of providing education materials to students in private high schools, nontraditional college and other courses (such as correspondence courses, continuing and corporate education courses and courses offered through electronic media such as the internet).

Other services offered to college bookstores include the sale of computer hardware and software, such as our turnkey bookstore management software that incorporates point of sale, inventory control and accounting modules, and related maintenance contracts. We have installed our proprietary total store management system at over 940 college bookstore locations, and we have an installed base of over 220 college bookstore locations for our textbook management control systems. In total, including our own bookstores, almost 1,200 college bookstore locations use our bookstore management software products.

On July 1, 2003, we acquired all of the outstanding shares of common stock of TheCampusHub.com, Inc. (“CampusHub”), an entity affiliated with us through common ownership. CampusHub is no longer separately incorporated and is instead accounted for as a division within our Complementary Services Division. CampusHub provides college bookstores with a way to sell in-store inventory and virtual brand name merchandise over the internet utilizing technology originally developed by us. This technology is utilized at approximately 640 bookstores.

We also provide centralized buying, consulting and store design services to assist college bookstores with their operations.

Industry Segment Financial Information

Revenue, operating profit or loss, and identifiable assets attributable to each of our reportable segments are disclosed in the notes to the consolidated financial statements presented in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K. We make our periodic and current reports available, free of charge, through www.nebook.com as soon as reasonably practicable after such material is electronically filed with the SEC. Information contained on our website is not a part of this Annual Report on Form 10-K.

Business Strategy

Our objective is to strengthen our position as a leading provider of products and services to the college bookstore market, thereby increasing revenue and cash flow. In order to accomplish our goal, we intend to pursue the following strategies:

Capitalize on college bookstore opportunities. We intend to increase revenues for our Bookstore Division by acquiring, opening or contract-managing additional bookstores at selected college campuses and by offering additional textbook rental programs, specialty products and services at our existing bookstores. We intend to pursue revenue growth and expand the buyback of used textbook inventory through the increased use of technology to enhance our internet activity using third-party and our own bookstores’ websites. Over time, we also intend to increase both in-store and internet transactions through the introduction and use of a national brand in appropriate markets.

Re-establish growth in the Textbook Division. We expect the Textbook Division to continue to be a primary contributor of revenues and cash flows, primarily as a result of an expected increase in college enrollments, continued utilization of used textbooks, and through the expansion of our own Bookstore Division, which should provide an additional supply of used textbooks. Additionally, to increase our supply of used textbooks, our commission structure is designed to reward customers who make a long-term commitment to supplying us with a large portion of their textbooks, and we continue to change and enhance our marketing campaign to increase student awareness of the benefits of buying and selling used textbooks. Finally, we expect to continue to utilize technology to enhance our ability to acquire and sell used textbooks in this division.

Increased market penetration through technology solutions. We intend to continue generating incremental revenue through the sale of our turnkey bookstore management software that incorporates point of sale, inventory control and accounting modules. The installation of our software, along with e-commerce technology offered through CampusHub, a division within the Complementary Services Division, also increases the channels through which we can access the college and university market.

Expansion of other services programs. We intend to continue to develop and provide other services that enhance the college bookstore business, such as distance education distribution, our centralized buying group, store design consulting and other technology-related programs.

Industry Overview

Based on recent industry trade data from the National Association of College Stores, we believe the college bookstore industry remains strong, with approximately 4,500 college bookstores generating annual sales of approximately $10.2 billion in the 2008-09 academic year to college students and other consumers in the United States. Sales of textbooks and other education materials used for classroom instruction comprise approximately sixty-five percent of that amount. We expect this market will continue to grow as a result of continuing increases in enrollment at U.S. colleges as estimated by the U.S. Department of Education. The United States Department of Education projects that total enrollment in the United States colleges will increase from 18.2 million in 2008 to 19.0 million in 2012.

College bookstore market. College bookstores generally fall into three categories:

(i)

institutional — bookstores that are primarily owned and operated by institutions of higher learning;

(ii)

contract-managed — bookstores owned by institutions of higher learning and managed by outside, private companies, typically found on-campus; and

(iii)

independent bookstores — privately owned and operated stores, generally located off campus.

Wholesale textbook market. We believe that used textbooks will continue to be attractive to both students and college bookstores. Used textbooks provide students with a lower-cost alternative to new textbooks and bookstores typically achieve higher margins through the sale of used rather than new textbooks.

The pricing pattern of textbook publishing accounts for a large part of the growth of the used textbook market. Because of copyright restrictions, each new textbook is produced by only one publisher, which is free to set the new copy retail price and discount terms to bookstores. Based on our experience, publishers generally offer new textbooks at prices that enable college bookstores to achieve a gross margin of 23.0% to 25.0% on new textbooks. Historically, the high retail costs of new textbooks and the higher margins achieved by bookstores on the sale of used textbooks have encouraged the growth of the market for used textbooks.

The used textbook cycle begins with new textbook publishers, who purposely plan obsolescence into the publication of new textbooks. Generally, new editions of textbooks are produced every two to four years. In the first year of a new edition, there are few used copies of a new edition available. In the second and third years, used textbooks become increasingly available. Simultaneously, publishers begin to plan an updated edition. In years four and beyond, at the end of the average life cycle of a particular edition, as publishers cut back on original production, used textbooks generally represent a majority (in unit terms) of the particular edition in use. While the length of the cycle varies by title (and sometimes is indefinite, as certain titles are never updated), the basic supply/demand progression remains fairly consistent.

College bookstores begin to place orders with used textbook wholesalers once professors determine which textbooks will be required for their upcoming courses, usually by the end of May for the fall semester and the end of November for the spring semester. Bookstore operators must first determine their allocation between new and used copies for a particular title but, in most cases, they will order an ample supply of used textbooks because: (i) used textbook demand from students is typically strong and consistent; (ii) many operators only have access to a limited supply from wholesalers and believe that not having used textbook alternatives could create considerable frustration among students and with the college administration; (iii) bookstore operators earn higher margins on used textbooks than on new textbooks; and (iv) both new and used textbooks are sold with return privileges, eliminating any overstock risk (excluding freight charges) to the college bookstore.

New textbook ordering usually begins in June (for the fall semester), at which time the store operator augments its expected used textbook supply by ordering new textbooks. By this time, publishers typically will have just implemented their annual price increases. These regular price increases allow us and our competitors to buy used textbooks based on old list prices (in May) and to almost simultaneously sell them based on new higher prices, thereby creating an immediate margin increase.

While price is an important factor in the store operator’s purchasing decision, available supply, as well as service, usually determine with which used textbook wholesaler a college bookstore will develop a strong relationship. Used textbook wholesalers that are able to significantly service a college bookstore account typically receive preferential treatment from store operators, both in selling and in buying used textbooks. Pure exclusive supply arrangements in our market are rare; however, in the past nine to ten fiscal years, we have been marketing certain supply programs to the industry. These programs reward customers who make a long-term commitment to supplying us with a large portion of their books through enhanced commissions, express returns and book-buy promotion ideas and marketing materials. At the end of fiscal year 2010, over 480 bookstores were participating in these programs. Since we are usually able to sell a substantial majority of the used textbooks we are able to purchase, our ability to obtain sufficient supply is a critical factor in our success.

Products and Services

Bookstore Division. As of March 31, 2010, we operated 280 college bookstores on or adjacent to college campuses. These bookstores sell and rent a wide variety of used and new textbooks and sell general books and assorted merchandise, including apparel, sundries and gift items. Over the past three fiscal years, external customer revenues (revenues excluding intercompany revenues) of our bookstores from activities other than used and new textbook sales and rentals have been between 16.6% and 17.4% of total revenues. We have been, and intend to continue, selectively expanding our product offerings at our bookstores in order to increase revenues and profitability. We have also installed, and are continually improving, software that provides e-commerce capabilities in all of our own bookstores, thereby allowing our bookstores to further expand product offerings and compete with other online textbook and general merchandise sellers. All of our bookstores sell through their own customized websites and many stores also sell textbooks and general merchandise through third-party websites that are popular among college students such as Amazon.com and Half.com.

Textbook Division. Our Textbook Division is engaged in the procurement and redistribution of used textbooks on college campuses primarily across the United States and through third-party websites. The portion of the used textbook business that our division operates in is limited to certain stores, certain textbooks and certain third-party websites. In general, the portion of the college bookstore market that our Textbook Division cannot access includes those contract-managed stores that are not operated by us that sell their used textbooks to affiliated companies, institutional and independent bookstores, to the extent that such used textbooks are repurchased from students and are retained by the bookstore for resale without involving a wholesaler and third-party websites that we do not buy and sell used textbooks through.

We publish the Buyer’s Guide, which lists approximately 52,000 textbooks according to author, title, new copy retail price, and our repurchase price. The Buyer’s Guide is an important part of our inventory control and textbook procurement system. We update and reprint the Buyer’s Guide nine times each year and make it available in both print and various electronic formats, including on our proprietary software applications. A staff of dedicated professionals gathers information from all over the country in order to make the Buyer’s Guide into what we believe to be the most comprehensive and up-to-date pricing and buying aid for college bookstores. We also maintain a database of approximately 174,000 titles in order to better serve our customers.

Complementary Services Division. Through Specialty Books, we have access to the market for distance education products and services. Currently, we provide students at approximately 30 colleges and private high schools with textbooks and materials for use in distance education and other education courses, and we are a provider of textbooks to nontraditional programs and students such as correspondence or corporate education students. We believe the fragmented distance education market represents an opportunity for us to leverage our fulfillment and distribution expertise in a growing sector of the industry. Beyond textbooks, we offer services and specialty course materials to the distance education marketplace. Students are provided a web portal allowing them a secure and easy-to-use method for obtaining their course materials. Over the past three fiscal years, external customer revenues of Specialty Books have been between 50.2% and 54.9% of total Complementary Services Division revenues.

Other services offered to college bookstores include services related to our turnkey bookstore management software that incorporates point of sale, inventory control and accounting modules, the sale of other software and hardware, and the related maintenance contracts. These services generate revenue and assist us in gaining access to new sources of used textbooks. We have installed our proprietary total store management system at over 940 college bookstore locations, and we have an installed base of over 220 college bookstore locations for our textbook management control systems. In total, including our own bookstores, almost 1,200 college bookstore locations use our bookstore management software products. In addition, we have developed software for e-commerce capabilities. These software products allow college bookstores to launch their own e-commerce site and effectively compete against other online textbook and general merchandise sellers by offering textbooks and both traditional and non-traditional store merchandise online. Presently, there are approximately 640 stores, including our own stores, licensing our e-commerce technology via CampusHub. We also offer a digital delivery solution which allows a college bookstore to offer students the option of purchasing E-books via download in addition to new and used textbooks. On April 14, 2008, we announced an agreement with CourseSmart, a comprehensive supplier of digital course materials, which establishes us as CourseSmart’s preferred supplier of e-books to the college bookstore community.

Through C2O, we are able to offer a variety of products and services to participating college bookstores. C2O negotiates apparel, supplies, gifts, and general merchandise discounts and develops and executes marketing programs for its membership. C2O has evolved into a buying group with substantial purchasing clout by aggregating the purchasing power of approximately 770 participating stores. Other C2O marketing services include a freight savings program, a credit card processing program, a shopping bag program, and retail display allowances for magazine displays. Additionally, the C2O staff of experienced professionals consults with the management and buyers of member bookstores. Consulting services offered include strategic planning, store review, merchandise assortment planning, buyer training, and help with other operational aspects of the business. While consulting has historically represented a relatively small component of C2O’s business, it is nonetheless strategically important to the ongoing success of this aspect of our business.

We also provide consulting and store design services to assist college bookstores in store presentation and layout.

Business Description

Bookstore Division. An important aspect of our business strategy is a program designed to reach new customers through the opening or acquisition of bookstores adjacent to college campuses or the contract-management of stores on campus. In addition to generating sales or rentals of new and used textbooks and sales of general merchandise, these outlets enhance our Textbook Division by increasing the inventory of used books purchased from the campus.

A desirable campus for a company-operated, off-campus college bookstore is one on which our Textbook Division does not currently buy or sell used textbooks either because a competitor contract-manages the college’s bookstore or the college bookstore does not have a strong relationship with us. We generally will not open a location on a campus where we already have a strong relationship with the college bookstore because some college bookstores may view having a competing location as a conflict of interest. A desirable campus for contract-management is one where the current contract-management service is being provided by a competitor of ours and the contract is expiring.

We tailor each of our own bookstores to fit the needs and lifestyles of the campus on which it is located. Individual bookstore managers are given significant planning and managing responsibilities, including, hiring employees, controlling cash and inventory, and purchasing and merchandising product. We have staff specialists, or contracts with external specialists, to assist individual bookstore managers in such areas as store planning, merchandise purchasing and layout, inventory control and media buying.

As of March 31, 2010 we operated 280 college bookstores nationwide, having expanded from 124 bookstores at the beginning of fiscal year 2006. During fiscal year 2010, we initiated the contract-management of 14 bookstore locations and established the start-up of 6 bookstore locations.

The table below highlights certain information regarding our bookstores added and closed through March 31, 2010.

										Bookstores
		Bookstores Open				Bookstores				Lost/Closed				Bookstores at
		at Beginning of				Added During				During Fiscal				End of Fiscal
Fiscal Year		Fiscal Year				Fiscal Year				Year				Year
2006			124				17				2				139
2007			139				120				15				244
2008			244				23				7				260
2009			260				24				7				277
2010			277				20				17				280

We plan to continue increasing the number of bookstores in operation. The private bookstore expansion plan will focus on campuses where we do not already have a strong relationship with the on-campus bookstore. In determining whether or not to purchase an existing bookstore or open a new bookstore, we look at several criteria: (i) a large enough market to justify our efforts (typically this means a campus of at least 5,000 students); (ii) the competitive environment (how many bookstores currently serve the campus); (iii) a site in close proximity to campus with adequate parking and accessibility; (iv) the potential of the bookstore to have a broad product mix (larger bookstores are more attractive than smaller bookstores because a full line of general merchandise can be offered in addition to textbooks); (v) the availability of top-quality management; and (vi) certain other factors, including leasehold improvement opportunities and personnel costs. We also plan to pursue opportunities to contract-manage additional institutional stores. In determining to pursue opportunities to contract-manage a campus bookstore, we look at: (i) the size of the market; (ii) the competitive status of the market; (iii) the availability of top quality management; and (iv) certain other factors, including personnel costs. As mentioned previously, on May 1, 2006, we acquired 101 college bookstore locations, 98 of which were contract-managed, through the acquisition of all of the outstanding stock of CBA.

Wholesale Procurement and Distribution. Historically, because the demand for used textbooks has consistently exceeded supply, our sales have been primarily determined by the amount of used textbooks that we can purchase. As a result, our success has depended primarily on our inventory procurement, and we continue to focus our efforts on obtaining inventory. In order to ensure our ability to both obtain and redistribute inventory, our Textbook Division strategy has emphasized establishing and maintaining strong customer and supplier relationships with college bookstores (primarily, independent and institutional college bookstores) through our employee account representatives. These 27 account representatives (as of March 31, 2010) are responsible for procuring used textbooks from students, marketing our services on campus, purchasing overstock textbooks from bookstores and securing leads for sale of our systems products. We have been able to maintain a competitive edge by providing superior service, made possible primarily through the development and maintenance of ready access to inventory, information and supply. Other components of the Textbook Division strategy and its implementation include: (i) selectively paying a marginal premium relative to competitors to entice students to sell back more textbooks to us; (ii) gaining access to competitive campuses (where the campus bookstore is contract-managed by a competitor) by opening or acquiring off-campus, company-owned college bookstores; (iii) using technology to gain efficiencies and to improve customer service; (iv) maintaining a knowledgeable and experienced sales force that is customer-service oriented; (v) providing working capital flexibility for bookstores making substantial purchases; (vi) establishing long-term supply arrangements by rewarding customers who make a long-term commitment to supplying us with a large portion of their books; and (vii) purchasing and selling textbooks over the internet through third-party websites.

The two major used textbook purchasing seasons are at the end of each academic semester, May and December. Although we make textbook purchases during other periods, the inventory purchased in May, before publishers announce their price increases in June and July, allows us to purchase inventory based on the lower retail prices of the previous year. The combination of this purchasing cycle and the fact that we are able to sell our inventory in relation to retail prices for the following year permits us to realize additional gross profit. We advance cash to our representatives during these two periods, and the representatives in turn buy textbooks directly from students, generally through the on-campus bookstore.

After we purchase the textbooks, we arrange for shipment to our warehouse in Nebraska via common carrier. At the warehouse, we refurbish damaged textbooks and categorize and shelve all other textbooks in a timely manner, and enter them into our online inventory system.

Customers place orders by phone, mail, fax or other electronic method. Upon receiving an order, we remove the textbooks from available inventory and hold them for future shipping. Customers may generally return textbooks within 60 days after the start of classes (90 days for certain customers participating in the exclusive supply program). External customer returns over the past three fiscal years have averaged approximately 23.7% of sales and generally are attributable to course cancellations or overstocking. The majority of returns are textbooks that we are able to resell for the next semester.

Information Technology. We believe that we can enhance efficiency, profitability and competitiveness through investments in technology. Because our solutions create a competitive advantage, establish efficiencies and ensure cost-effectiveness of both our operations and the operations of our bookstore customers and suppliers, some of our proprietary software applications are currently in patent pending status with the United States Patent and Trademark Office. Additionally, we have registered trademarks for many of our software product names where brand recognition may be an important factor.

The center of our technology infrastructure revolves around PRISM and WinPRISM, our proprietary college store management, textbook management, point of sale, and inventory control systems. With more than a combined 25 years of availability in the marketplace, these proven software applications are maintained and continuously enhanced by a dedicated team of development and support professionals. Our technology operations process order entry, control inventory, generate purchase orders and customer invoices, generate various sales reports, and process and retrieve textbook information. In addition, we have developed integrated e-commerce software and service solutions allowing college bookstores to launch their own e-commerce site and effectively compete against other online textbook and general merchandise sellers by offering both print and digital textbooks and both traditional and non-traditional store merchandise online. We also develop, license or obtain certain rights related to other software designed to strengthen our e-commerce capabilities, including the capability for our bookstores to efficiently sell inventory through third-party websites that are popular among college students such as Amazon.com and Half.com.

In addition to using our technology for our own benefit through management and inventory control, we license the use of certain technology to bookstores. The use of our software by bookstore customers and suppliers helps solidify the business relationship, resulting in increased sales and access to additional inventory.

We conduct training courses for all systems users online and at our headquarters in Lincoln, Nebraska. Classes are small and provide hands on training for the various systems. Printed reference manuals and training materials accompany each system. The customer support call center is staffed with approximately 60 experienced personnel. Support is offered via website, e-mail, and toll-free phone numbers. While support hours vary per product and time of year, after-hours pager support is available for mission-critical systems.

Beginning late in fiscal year 2008, we embarked on a project to replace our internally-developed general ledger system with a general ledger/business planning and consolidation solution from SAP. During fiscal year 2009, the new solution was put into place and utilized for internal management reporting and the fiscal year 2010 budgeting process. The new solution was fully integrated in fiscal year 2010, and, among other things, provides us with greater flexibility in recording and analyzing our operating results and streamlining our budgeting process and is utilized for external financial reporting purposes.

Customers

Our college bookstores are located at college campuses of all sizes, including some of the nation’s largest campuses, such as: Miami-Dade College; Arizona State University; Ohio State University; University of Florida; Michigan State University; Texas A&M University; University of Central Florida; Pennsylvania State University; University of Michigan; Florida State University; and University of Arizona.

We sell our Textbook and certain Complementary Services Division products and services to college bookstores throughout North America, primarily throughout the United States. Our Textbook Division purchases from and resells used textbooks to college bookstores at college campuses of all sizes, including many of the nation’s largest campuses, such as: University of Virginia; Oregon State University; University of Texas; University of Illinois; University of Washington; University of Southern California; and Long Beach State University. Our 25 largest Textbook Division customers accounted for approximately 2.7% of our fiscal year 2010 consolidated revenues. No single Textbook Division customer accounted for more than 1.0% of our fiscal year 2010 consolidated revenues.

Our distance education program is, among other things, a primary supplier of textbooks and educational material to students enrolled in online courses offered through approximately 30 colleges and private high schools. For the fiscal years ended March 31, 2010, 2009 and 2008, one institution accounted for approximately 68%, 69% and 63%, respectively, of distance education program external customer revenues.

No single customer accounted for more than 10.0% of our consolidated revenues in fiscal year 2010, 2009 or 2008.

Competition

We compete with a variety of other companies and also individuals, all of whom seek to provide products and/or services to the college marketplace. Our main corporate competitors, who provide products and services to colleges and universities, college bookstores and directly to students, are Follett Higher Education Group (“Follett”) and MBS Textbook Exchange/Barnes & Noble College Booksellers (“MBS”). MBS Textbook Exchange and Barnes & Noble College Booksellers are affiliated companies with certain common ownership.

Our Bookstore Division competes with:

•

Follett, MBS and a number of smaller companies for the opportunity to contract-manage institutional college bookstores (Follett and MBS contract-manage more than 700 and 600 stores, respectively);

•

other college bookstores located at colleges and universities that we serve;

•

a number of entities that rent or sell textbooks, sell e-books, other digital content and other merchandise directly to students through e-commerce bypassing the traditional college bookstore;

•

student-to-student transactions that take place on campus and over the internet; and

•

course packs and electronic media as a source of textbook information, such as on-line resources, e-books, print-on-demand textbooks and CD-ROMs which may replace or modify the need for students to purchase textbooks through the traditional college bookstore.

Our Textbook Division competes in the used textbook market, which includes the purchase and resale of used textbooks. We compete with:

•

college bookstores who normally repurchase textbooks from students to be reused on that campus the following semester or term;

•

student-to-student transactions that take place on campus and over the internet;

•

other wholesalers who purchase used textbooks from students and then resell them to other college bookstores; and

•

a number of individuals and companies that buy textbooks directly from students through e-commerce, or in person, bypassing the traditional college bookstores who are the Textbook Division’s suppliers and customers.

Our Textbook Division competes in the wholesale business with Follett and MBS, and certain smaller regional companies including Budgetext, Texas Book Company, Tichenor College Textbook Company, and South Eastern Book Company. We believe that our market share of the independent and non-contract-managed institutional stores is comparable to that of Follett and MBS individually. Many of Follett’s and some of MBS’s college bookstores are located on smaller campuses. The size of the campus and their presence there have precluded us from entering these markets, which in turn affects both our ability to buy books and our ability to add new accounts.

Our Complementary Services Division competes with:

•

MBS in the sale and installation of college bookstore information technology;

•

MBS in the distance education textbook distribution market;

•

college bookstores that provide their own e-commerce solution in competition with CampusHub;

•

the Independent College Bookstore Association (“ICBA”) in the centralized buying service business (participation by college bookstores in C2O’s or ICBA’s centralized buying service is voluntary, and college bookstores may, and some do, belong to both buying associations); and

•

a variety of smaller organizations and individuals involved in these businesses and others such as marketing services and consulting services.

Governmental Regulation

We are subject to various federal, state and local health and safety laws and regulations. Generally, these laws establish standards for vehicle and employee safety. These laws include the Occupational Safety and Health Act. Future developments, such as stricter employee health and safety laws and regulations thereunder, could affect our operations. We do not currently anticipate that the cost of our compliance with, or of any foreseeable liabilities under, employee health and safety laws and regulations will have a material adverse affect on our business or financial condition.

Insurance

We maintain general liability, property, worker’s compensation and other insurance in amounts and on terms that we believe are customary for companies similarly situated. In addition, we maintain excess insurance where we reasonably believe it is cost effective.

Employees

As of March 31, 2010 we had a total of approximately 2,600 employees, of which approximately 1,300 were full-time, approximately 800 were part-time and approximately 500 were temporary. We have no unionized employees and believe that our relationship with our employees is satisfactory.

In view of the seasonal nature of our Textbook Division, we use seasonal labor to improve operating efficiency. We employ a small number of “flex-pool” workers who are cross-trained in a variety of warehouse functions. Temporary employees augment the flex-pool to meet periodic labor demands.

Geographic Financial Information

Revenues from external customers and long-lived assets, all of which are attributable to domestic operations, are disclosed in the notes to the consolidated financial statements presented in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth in the following cautionary statements and elsewhere in this Annual Report on Form 10-K.

Our highly leveraged capital structure, as well as the conditions of the financial markets, could affect our ability to extend or refinance debt in advance of its maturity, which would negatively impact our liquidity and financial condition. Current global financial conditions have been characterized by increased market volatility. The global credit markets have been experiencing significant price volatility, dislocations and liquidity disruptions that have caused the interest rate cost of debt financings to increase considerably.

These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing. Continued uncertainty in the credit markets may negatively impact our ability to extend or refinance our existing debt on reasonable terms or at all, which may negatively affect our business.

Our three tranches of debt (the Senior Secured Notes, the ABL Facility and the Senior Subordinated Notes) each may mature within a period of six months of each other. The ABL Facility may mature on the earlier of October 2, 2012 and the date that is 91 days prior to the earliest maturity of the Senior Secured Notes (which mature on December 1, 2011), the Senior Subordinated Notes (which mature on March 15, 2012), NBC’s Senior Discount Notes (which mature on March 15, 2013), or any refinancing thereof. As a consequence, we may be required to refinance the other tranches of debt in our capital structure as well as NBC’s Senior Discount Notes, in order to refinance the ABL Facility. Due to our highly leveraged capital structure, in the absence of a significant improvement in our credit profile and/or the financial markets, we may not be able to refinance our indebtedness, or NBC may not be able to refinance its indebtedness, at all or on terms acceptable to us.

We face competition in our markets, which could adversely impact our revenue levels, profit margins and ability to acquire an adequate supply of used textbooks. Our industry is highly competitive. A large number of actual and potential competitors exist, some of which are larger than us and have substantially greater resources than us. Revenue levels and profit margins could be adversely impacted if we experience increased competition in the markets in which we currently operate or in markets in which we will operate in the future.

We are experiencing growing competition from alternative media and alternative sources of textbooks for students (such as websites designed to rent or sell textbooks and sell e-books, other digital content and other merchandise directly to students; on-line resources; publishers selling or renting directly to students; print-on-demand textbooks; and CD-ROMs) and from the use of course packs (which are collections of copyrighted materials and professors’ original content which are produced by college bookstores and sold to students), all of which have the potential to reduce or replace the need for textbooks sold through college bookstores. A substantial increase in the availability or the acceptance of these alternatives as a source of textbooks and textbook information could significantly reduce college students’ use of college bookstores and/or the use of traditional textbooks and thus adversely impact our revenue levels and profit margins.

We are also experiencing growing competition from technology-enabled student-to-student transactions that take place over the internet. These transactions, whereby a student enters into a transaction directly with another student for the sale and purchase of a textbook, provide competition by reducing the supply of textbooks available to us for purchase and by reducing the sale of textbooks through college bookstores. While these transactions have occurred for many years, prior to the internet these transactions were limited by geography, a lack of information related to pricing and demand, and other factors. A significant increase in the number of these transactions could adversely impact our revenue levels and profit margins.

Over the years, an increasing number of institution-owned college bookstores have decided to outsource or “contract-manage” the operation of their bookstores. The leading managers of these bookstores include two of our principal competitors in the wholesale textbook distribution business. Contract-managed bookstores primarily purchase their used textbook requirements from and sell their available supply of used textbooks to their affiliated operations. A significant increase in the number of contract-managed bookstores operated by our competitors, particularly at large college campuses, could adversely affect our ability to acquire an adequate supply of used textbooks.

We believe all of these competitive factors have contributed to a decline in textbooks sold in the Textbook Division.

Further deterioration in the economy and credit markets, a decline in consumer spending or other conditions may adversely affect our future results of operations. As widely reported, the global credit markets and financial services industry have been experiencing a period of upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, uncertainty about economic stability and intervention from the United States federal government. There can be no assurance that there will not be further deterioration in credit and financial markets and confidence in economic conditions or that any recovery, if and when achieved, will be sustained. While the ultimate outcome of these events cannot be predicted, it may decrease student enrollment in colleges and universities due to the lack of financial aid and other sources of funding for education. Spending by students on textbooks and other general merchandise may also decrease due to the economic downturn.

We are the sole operating subsidiary of our parent company and will need to continue to distribute funds to our parent to permit satisfaction of its obligations. Our parent company, NBC, is a holding company and as such conducts substantially all of its operations through us and our subsidiaries. Consequently, NBC does not have any income from its own operations and does not expect to generate income from its own operations in the future. As a result, NBC’s ability to meet its debt service obligations, including its obligations under its $77.0 million (face value) 11% Senior Discount Notes, substantially depends upon our and our subsidiaries’ cash flow and distribution of funds by us as dividends, loans, advances or other payments. Our ability to distribute funds to NBC will be limited under certain circumstances under the terms of our indentures and our other indebtedness. If in the future NBC were unable to satisfy its obligations under the Senior Discount Notes, which could result from the application of these restrictions on our ability to distribute funds to NBC, it could result in an event of default under the Senior Discount Notes. An event of default under the Senior Discount Notes could result in cross-defaults under our indebtedness, including the ABL Facility.

We may be unable to obtain a sufficient supply of used textbooks, which could adversely impact our revenue levels and profit margins. Our ability to purchase a sufficient number of used textbooks largely determines our used textbook sales for future periods. Successfully acquiring books typically requires a visible presence on college campuses at the end of each semester, which requires hiring a significant number of temporary personnel, and having access to sufficient funds under a revolving credit facility or other financing alternatives to purchase the books. Textbook acquisition also depends upon college students’ willingness to sell their used textbooks at the end of each semester. The unavailability of sufficient personnel or credit, or a shift in student preferences, could impair our ability to acquire sufficient used textbooks to meet our sales objectives, thereby adversely impacting our revenue levels and profit margins.

We may not be able to successfully acquire or contract-manage additional bookstores or integrate those additional stores, which could adversely impact our ability to grow revenues and profit margins. Part of our business strategy is to expand sales for our college bookstore operations by either acquiring privately-owned bookstores or being awarded additional contracts to manage institutional bookstores. We may not be able to identify additional private bookstores for acquisition or we may not be successful in competing for contracts to manage additional institutional bookstores. Due to the seasonal nature of business in our bookstores, the operations of the acquired or newly contract-managed bookstores may be affected by the time of the fiscal year when a bookstore is acquired or contract-managed by us. The process may require financial resources that would otherwise be available for our existing operations. Our integration of these future bookstores may not be successful; or, the anticipated strategic benefits of these future bookstores may not be realized or may not be realized within time frames contemplated by our management. Acquisitions and additional contract-managed bookstores may involve a number of special risks, including, but not limited to, adverse short-term effects on our reported results of operations, diversion of management’s attention, standardization of accounting systems, dependence on retaining, hiring and training key personnel, unanticipated problems or legal liabilities, and actions of our competitors and customers. If we are unable to successfully integrate our future bookstores for these or other reasons, anticipated revenues and profit margins from these new bookstores could be adversely impacted.

We may not be able to successfully renew our contract-managed bookstores on profitable terms, which could adversely impact our profit margins. As we expand our operations in contract-management of institutional bookstores, we will increasingly be competing for the renewal of our contracts for those stores as the current contracts expire. Our contracts are typically for 3 to 5 years, with various renewal and cancellation clauses. We may not be successful in renewing our current contracts or those renewals may not be on terms that provide us the opportunity to improve or maintain the profitability of managing the bookstore. If we are unable to successfully renew our contracts on profitable terms, our profit margins could be adversely impacted.

Publishers may not continue to increase prices of textbooks annually, which could adversely impact our revenue levels and profit margins. We generally buy used textbooks based on publishers’ prevailing prices for new textbooks just prior to the implementation by publishers of their annual price increases (which historically have been 4% to 5%) and resell these textbooks shortly thereafter based upon the new higher prices, thereby creating an immediate margin increase. Our ability to increase our used textbook prices each fiscal year depends on annual price increases on new textbooks implemented by publishers. The failure of publishers to continue annual price increases on new textbooks could adversely impact our revenue levels and profit margins. In recent periods, annual increases in prices have allowed us to partially offset a decline in unit sales, however there is no guaranty that this will continue.

Publisher practices regarding new editions and materials packaged with new textbooks could change, thereby reducing the supply of used textbooks available to us and adversely impacting our revenue levels and profit margins. Publishers have historically produced new editions of textbooks every two to four years. Changes in the business models of publishers to accelerate the new edition cycle or to significantly increase the number of textbooks with other materials packaged or bundled with them (which makes it more difficult to repurchase and resell the entire package of materials) could reduce the supply of used textbooks available to us, thereby adversely impacting our revenue levels and profit margins.

The loss or retirement of key members of management may occur, which could negatively affect our ability to execute our current strategy and/or our ability to effectively react to changing industry dynamics, thereby adversely impacting our revenue levels and profit margins. Our future success depends to a significant extent on the efforts and abilities of our senior management team. The loss of the services of any one of these individuals could negatively affect our ability to execute our current strategy and/or our ability to effectively react to changing industry dynamics, thereby adversely impacting our revenue levels and profit margins.

Our wholesale and bookstore operations are seasonal in nature — a significant reduction in sales during our peak selling periods could adversely impact our ability to repay the ABL Facility, thereby increasing interest expense and adversely impacting revenue levels by restricting our ability to buy an adequate supply of used textbooks. Our wholesale and bookstore operations experience two distinct selling periods and our wholesale operations experience two distinct buying periods. The peak selling periods for the wholesale operations occur prior to the beginning of each school semester in July/August and November/December. The buying periods for the wholesale operations occur at the end of each school semester in May and December. The primary selling periods for the bookstore operations are in August/September and January. In fiscal year 2010, 46% of our annual revenues occurred in the second fiscal quarter (July-September), while 32% of our annual revenues occurred in the fourth fiscal quarter (January-March). Accordingly, our working capital requirements fluctuate throughout the fiscal year, increasing substantially in May and December as a result of the buying periods. We fund our working capital requirements primarily through the ABL Facility. We repay the ABL Facility with cash provided from operations. A significant reduction in sales during our peak selling periods could adversely impact our ability to repay the ABL Facility, increase the average balance outstanding under the ABL Facility (thereby resulting in increased interest expense), and restrict our ability to buy an adequate supply of used textbooks (thereby adversely impacting our revenue levels).

We are controlled by one principal equity holder, which has the power to take unilateral action and could have an interest in pursuing acquisitions, divestitures and other transactions, even though such transactions might involve risks to other affected parties. Weston Presidio beneficially owns approximately 81.4% of NBC’s issued and outstanding common stock (taking into account for such percentage calculation options outstanding and options available, if any, for future grant under the 2004 Stock Option Plan). As a result, Weston Presidio is able to control all matters, including the election of a majority of our board of directors, the approval of amendments to NBC’s and our certificate of incorporation and the approval of fundamental corporate transactions such as mergers and asset sales. The interests of Weston Presidio may not in all cases be aligned with the interests of other affected parties. In addition, Weston Presidio may have an interest in pursuing acquisitions, divestitures and other transactions, including selling us, that, in its judgment, could affect its equity investment, even though such transactions might involve risks to other affected parties.

Our substantial indebtedness could limit cash flow available for our operations and could adversely affect our ability to service debt or obtain additional financing, if necessary. As of March 31, 2010, we had total outstanding debt of approximately $377.6 million. Our level of indebtedness could have important consequences. For example, it could:

•

make it more difficult to pay our debts as they become due, especially during general negative economic and market industry conditions because if our revenues decrease due to general economic or industry conditions, we may not have sufficient cash flow from operations to make our scheduled debt payments;

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and, consequently, places us at a competitive disadvantage to our competitors with less debt;

•

require us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

•

limit our ability to make strategic acquisitions, invest in new products or capital assets or take advantage of business opportunities;

•

limit our ability to obtain additional financing, particularly in the current economic environment; and

•

render us more vulnerable to general adverse economic, regulatory and industry conditions.

Restrictive covenants may adversely affect our operations. The ABL Credit Agreement and the indentures governing the Senior Secured Notes, the Senior Subordinated Notes, and NBC’s Senior Discount Notes contain various covenants that limit our ability to, among other things:

•

incur or assume additional debt or provide guarantees in respect of obligations of other persons;

•

issue redeemable stock and preferred stock;

•

pay dividends or distributions or redeem or repurchase capital stock;

•

prepay, redeem or repurchase debt;

•

make loans, investments and capital expenditures;

•

incur liens;

•

engage in sale/leaseback transactions;

•

restrict dividends, loans or asset transfers from our subsidiaries;

•

sell or otherwise dispose of assets, including capital stock of subsidiaries;

•

consolidate or merge with or into, or sell substantially all of our assets to, another person;

•

enter into transactions with affiliates; and

•

enter into new lines of business.

In addition, the restrictive covenants in the ABL Credit Agreement require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet them. A breach of any of these covenants could result in a default under the ABL Facility. Moreover, the occurrence of a default under the ABL Facility could result in an event of default under our other indebtedness including the Senior Subordinated Notes and the Senior Secured Notes and NBC’s Senior Discount Notes. Upon the occurrence of an event of default under the ABL Facility, the lenders could elect to declare all amounts outstanding under the ABL Facility to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the ABL Facility could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under the ABL Facility. If the lenders under the ABL Facility accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay the ABL Facility and our other indebtedness or borrow sufficient funds to refinance such indebtedness. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.

The amount of borrowings permitted under the ABL Facility may fluctuate significantly, and the maturity of the ABL Facility may be accelerated under certain circumstances, which may adversely affect our liquidity, financial position and results of operations. The amount of borrowings permitted at any time under the ABL Facility is limited to a monthly (or more frequently under certain circumstances) borrowing base valuation of our inventory, accounts receivable and certain cash balances. As a result, access to credit under the ABL Facility is potentially subject to significant fluctuations depending on the value of the eligible assets that comprise the borrowing base as of any measurement date, as well as certain discretionary rights of the agent in respect of the calculation of such borrowing base value. In addition, in the event that we fail to comply with the covenants and restrictions of the ABL Facility, we may be in default, at which time payment of the obligations and unpaid interest may be accelerated and become immediately due and payable under the ABL Facility, which may adversely affect our liquidity, financial position and results of operations.

A portion of our goodwill recently became impaired and we may be required to write down additional amounts of goodwill or identifiable intangibles and record impairment charges if future circumstances indicate that goodwill or identifiable intangibles are impaired. We monitor relevant circumstances, including industry trends, general economic conditions, and the potential impact that such circumstances might have on the valuation of our goodwill and identifiable intangibles. It is possible that changes in such circumstances, or in the numerous variables associated with the judgments, assumptions and estimates made by us in assessing the appropriate valuation of our goodwill and identifiable intangibles, could in the future require us to further write down a portion of our goodwill or write down a portion of our identifiable intangibles and record related non-cash impairment charges. We evaluate the impairment of the carrying value of our goodwill and identifiable intangibles in accordance with applicable accounting standards, including the Intangibles — Goodwill and Other and Property, Plant and Equipment Topics of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”). In accordance with such standards, we evaluate impairment on goodwill and certain identifiable intangibles annually and evaluate impairment on all intangibles whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Our evaluation of impairment is based on a combination of our projection of estimated future cash flows and other valuation methodologies. We recorded impairment charges of $107.0 million to reduce the carrying value of goodwill to its estimated fair value at March 31, 2009. We completed our annual test for impairment during the fourth quarter for the year ended March 31, 2010 and no impairment was indicated. The goodwill impairment charge is described in greater detail in Note F of the notes to our consolidated financial statements.

Our operations are subject to various laws, rules and regulations relating to protection of the environment and of human health and safety. Our operations are subject to federal, state and local laws relating to the protection of the environment and of human health and safety. As an owner and operator of real property, we can be found jointly and severally liable under such laws for costs associated with investigating, removing and remediating any hazardous or toxic substances that may exist on, in or about our real property. This liability can be imposed without regard to whether the owner or operator had knowledge of, or was actually responsible for causing, the conditions being addressed. Some of our properties may have been impacted by the migration of hazardous substances released at neighboring third-party locations. In addition, it is possible that we may face claims alleging harmful exposure to, or property damage resulting from, the release of hazardous or toxic substances at or from our locations or otherwise related to our business. Environmental conditions relating to any former, current or future locations could adversely impact our business and results of operations.

Increases in the price of raw materials used by our suppliers or the reduced availability of raw materials to our suppliers could increase their cost of goods, which could be passed on to us through higher prices in new textbooks, clothing and general merchandise, which may decrease our profitability. The principal raw materials used by our suppliers are paper, various fabrics and plastics. The prices we pay our suppliers for new textbooks, clothing and general merchandise are dependent in part on the market price for raw materials used to produce them. The price and availability of such raw materials may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation, economic climates and other unpredictable factors. Any and all of these factors may be exacerbated by global climate change. Fluctuations in the price and availability of raw materials to our suppliers have not materially affected our profitability in recent years. However, increases in raw material costs, together with other factors, might cause an increase in the cost of goods for our suppliers which may be passed onto us through higher prices.

ITEM 2. PROPERTIES.

At March 31, 2010, our Bookstore Division locations consisted of the following: (i) 6 owned off-campus bookstore locations, (ii) 128 leased off-campus bookstore locations, and (iii) 146 leased on-campus (contract-managed) bookstore locations serving university and post-graduate educational institutions throughout the United States. These institutions serve more than 2 million students. We own our two Textbook Division warehouses (totaling 253,000 square feet) in Lincoln, Nebraska (one of which is also the location of our headquarters). Our distance education program resides in a leased facility with 49,500 square feet in Athens, Ohio. The lease, as amended, expires on May 31, 2011 and has one one-year option to renew.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we are subject to legal proceedings and other claims arising in the ordinary course of our business. We believe that currently we are not a party to any litigation the outcome of which would have a material adverse affect on our financial condition or results of operations. We maintain insurance coverage against claims in an amount which we believe to be adequate.

ITEM 4. RESERVED AND REMOVED.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

There were no equity securities issued by us during fiscal year 2010. There is no established public trading market for our common stock and all of our common stock is owned by NBC. As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data, the payment of dividends is subject to various restrictions under our debt instruments. For fiscal year 2010 and 2009, cash dividends of $8.5 million were paid to NBC to provide funding for interest due and payable on NBC’s $77.0 million 11% senior discount notes. No dividends were declared on our common stock during fiscal year 2008.

Additional information regarding equity compensation plans can be found in Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth our selected historical consolidated financial and other data and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes thereto included in Item 8, Financial Statements and Supplementary Data. The selected historical consolidated financial data was derived from our audited consolidated financial statements.

		Fiscal Years Ended
		March 31,				March 31,				March 31,				March 31,				March 31,
		2010				2009				2008				2007				2006
		(dollars in thousands)
Statement of Operations Data:
Revenues		$	605,494			$	610,716			$	581,248			$	544,428			$	420,108
Costs of sales (exclusive of depreciation shown below)			370,196				371,369				354,140				332,444				250,914
Gross profit			235,298				239,347				227,108				211,984				169,194
Operating expenses:
Selling, general and administrative (1)			161,858				168,315				157,193				143,096				107,991
Closure of California Warehouse			—				—				(36	)			774				—
Depreciation			8,517				7,603				7,209				5,916				4,913
Amortization			10,853				11,384				10,443				9,613				8,762
Goodwill impairment (2)			—				106,972				—				—				—
Income (Loss) from operations			54,070				(54,927	)			52,299				52,585				47,528
Other expenses (income):
Interest expense			40,680				32,878				33,559				33,135				29,395
Interest income			(180	)			(427	)			(1,332	)			(1,643	)			(1,275	)
Loss on early extinguishment of debt (3)			3,066				—				—				—				—
(Gain) Loss on derivative instrument (4)			—				102				198				225				(525	)
Income (Loss) before income taxes			10,504				(87,480	)			19,874				20,868				19,933
Income tax expense			3,142				7,449				7,418				8,256				7,691
Net income (loss)		$	7,362			$	(94,929	)		$	12,456			$	12,612			$	12,242
Other Data:
Adjusted EBITDA (5)		$	73,440			$	71,032			$	69,951			$	68,114			$	61,203
Net cash flows from operating activities			36,237				31,666				20,864				27,432				22,498
Net cash flows from investing activities			(8,766	)			(14,898	)			(22,179	)			(32,809	)			(18,122	)
Net cash flows from financing activities			(10,537	)			(2,055	)			(2,341	)			4,976				(2,218	)
Capital expenditures			5,411				7,979				7,261				6,543				7,312
Business acquisition expenditures (6)			2,848				6,321				14,682				25,874				10,849
Number of bookstores open at end of the period (7)			280				277				260				244				139
Balance Sheet Data (At End of Period):
Cash and cash equivalents		$	60,973			$	44,038			$	29,326			$	32,983			$	33,383
Working capital (8)			168,561				151,520				137,100				130,389				111,066
Total assets			615,505				608,067				702,087				695,489				645,346
Total debt, including current maturities			377,624				372,411				375,204				375,587				354,309

The following presentation reconciles net income (loss), which we believe to be the closest GAAP performance measure, to EBITDA and Adjusted EBITDA and reconciles EBITDA and Adjusted EBITDA to net cash flows from operating activities, which we believe to be the closest GAAP liquidity measure, as presented in the Consolidated Statements of Cash Flows included in Item 8, Financial Statements and Supplementary Data:

		Fiscal Years Ended
		March 31,				March 31,				March 31,				March 31,				March 31,
		2010				2009				2008				2007				2006
		(dollars in thousands)
Net income (loss)			7,362				(94,929	)			12,456				12,612				12,242
Interest expense, net			40,499				32,553				32,425				31,717				27,595
Income tax expense			3,142				7,449				7,418				8,256				7,691
Depreciation and amortization			19,371				18,987				17,652				15,529				13,675
EBITDA			70,374				(35,940	)			69,951				68,114				61,203
Goodwill impairment			—				106,972				—				—				—
Loss on early extinguishment of debt			3,066				—				—				—				—
Adjusted EBITDA (5)		$	73,440			$	71,032			$	69,951			$	68,114			$	61,203
Share-based compensation			1,107				1,288				1,041				997				—
Interest income			180				427				1,332				1,643				1,275
Provision for losses on receivables			1,399				1,367				468				834				231
Cash paid for interest			(29,102	)			(30,654	)			(31,755	)			(31,388	)			(27,875	)
Cash paid for income taxes			(3,155	)			(9,930	)			(13,031	)			(6,551	)			(9,589	)
(Gain) Loss on disposal of assets			235				125				285				(1	)			90
Due to Parent			(3,064	)			(3,160	)			(237	)			(84	)			(75	)
Changes in operating assets and liabilities, net of effect of acquisitions (9)			(4,803	)			1,171				(7,190	)			(6,132	)			(2,762	)
Net Cash Flows from Operating Activities		$	36,237			$	31,666			$	20,864			$	27,432			$	22,498

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussions should be read in conjunction with our consolidated financial statements and the related notes thereto included in Item 8, Financial Statements and Supplementary Data, and other information in this Annual Report on Form 10-K.

Executive Summary

Overview

Acquisitions. Our Bookstore Division continues to grow its number of bookstore locations through acquisitions and start-up locations. We initiated the contract-management of 14 bookstore locations in 11 separate transactions and established the start-up of 6 bookstore locations during the fiscal year ended March 31, 2010. We believe there are attractive opportunities for us to continue to expand our chain of bookstores across the country.

Revenue Results. Consolidated revenues for the fiscal year ended March 31, 2010 decreased $5.2 million, or 0.9%, from the fiscal year ended March 31, 2009. This decrease was primarily due to a decrease in revenues in the Textbook Division as a result of a decrease in units sold. Revenues increased in the Bookstore Division primarily due to acquisition activity and start-up growth since April 1, 2008. Revenues increased in the Complementary Services Division primarily as a result of increased revenues from our distance education and e-commerce businesses which were partially offset by a decrease in revenues from our consulting business.

Adjusted EBITDA Results. Consolidated Adjusted EBITDA for the fiscal year ended March 31, 2010 increased $2.4 million, or 3.4%, from the fiscal year ended March 31, 2009. The Adjusted EBITDA increase is attributable to an increase in our Bookstore and Complementary Services Divisions Adjusted EBITDA and a lower Adjusted EBITDA loss in the Corporate Administration Division, which were offset by a decrease in the Adjusted EBITDA of the Textbook Division. Adjusted EBITDA in the Bookstore Division was up due primarily to lower selling, general and administrative expenses primarily as a result of cost cutting measures implemented during the last quarter of fiscal 2009. Complementary Services Division Adjusted EBITDA was up primarily due to improved results from our distance education and e-commerce services businesses. Corporate Administration Adjusted EBITDA loss was down due to prior year costs related to an early retirement program and severance, which were not incurred again in fiscal 2010. Adjusted EBITDA in the Textbook Division was down due primarily to lower revenues, which was partially offset by lower selling, general and administrative expenses primarily as a result of cost cutting measures implemented during the last quarter of fiscal 2009. EBITDA and Adjusted EBITDA are considered non-GAAP measures by the SEC, and therefore you should refer to the more detailed explanation of those measures that is provided below.

EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA is EBITDA adjusted for goodwill impairment and for loss on early extinguishment of debt. There was no goodwill impairment or loss on early extinguishment of debt for the fiscal year ended March 31, 2008; therefore, Adjusted EBITDA equals EBITDA for that period. As we are highly-leveraged and as our equity is not publicly-traded, management believes that the non-GAAP measures, EBITDA and Adjusted EBITDA, are useful in evaluating our results and provide additional information for determining our ability to meet debt service requirements. That belief is driven by the consistent use of the measures in the computations used to establish the value of our equity over the past 15 years and the fact that our debt covenants also use those measures, as further described below, to measure and monitor our financial results. Due to the importance of EBITDA and Adjusted EBITDA to our equity and debt holders, our chief operating decision makers and other members of management use EBITDA and Adjusted EBITDA to measure our overall performance, to assist in resource allocation decision-making, to develop our budget goals, to determine incentive compensation goals and payments, and to manage other expenditures among other uses.

Adjusted EBITDA is defined in the ABL Credit Agreement as: (1) consolidated net income, as defined therein; plus (2) the following items, to the extent deducted from consolidated net income: (a) income tax expense; (b) interest expense, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with indebtedness; (c) depreciation and amortization expense; (d) amortization of intangibles and organization costs; (e) any non-cash extraordinary, unusual or non-recurring expenses or losses; (f) any other non-cash charges; and (g) charges incurred on or prior to September 30, 2010 in connection with the restricted stock plan not to exceed $5.0 million in the aggregate; minus (3) the following items, to the extent included in the statement of net income for such period; (i) interest income; (ii) any extraordinary, unusual or non-recurring income or gains; and (iii) any other non-cash income. Adjusted EBITDA is similarly defined in the indentures to the Senior Subordinated Notes and the Senior Secured Notes except that charges incurred in connection with the restricted stock plan are not added back to consolidated net income. Adjusted EBITDA is utilized when calculating the pro forma fixed charge coverage ratio under the ABL Credit Agreement and the pro forma consolidated coverage ratio under the indentures to the Senior Subordinated Notes and the Senior Secured Notes. See Note H to the consolidated financial statements for disclosure of certain of our financial covenants.

There are material limitations associated with the use of EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to net cash flows from operating activities or net income as determined by GAAP. Furthermore, EBITDA and Adjusted EBITDA do not necessarily indicate whether cash flows will be sufficient for cash requirements because the measures do not include reductions for cash payments for our obligation to service our debt, fund our working capital, make capital expenditures and make acquisitions or pay our income taxes and dividends; nor are they a measure of our profitability because they do not include costs and expenses identified below. We believe EBITDA and Adjusted EBITDA when viewed with both our GAAP results and the reconciliations to operating cash flows and net income provide a more complete understanding of our business than otherwise could be obtained absent this disclosure. Items excluded from EBITDA and Adjusted EBITDA, such as interest, taxes, depreciation, amortization, goodwill impairment, and loss on early extinguishment of debt, are significant components in understanding and assessing our financial performance. EBITDA and Adjusted EBITDA measures presented may not be comparable to similarly titled measures presented by other companies.

Challenges and Expectations

We expect that we will continue to face challenges and opportunities similar to those which we have faced in the recent past and, in addition, new and different challenges and opportunities given the general instability in the credit markets and economy. Our three tranches of debt (the Senior Secured Notes, the ABL Facility and the Senior Subordinated Notes) each may mature within a period of six months of each other. Due to our highly leveraged capital structure, continued uncertainty in the credit markets and/or our future results of operations may negatively impact our ability to extend or refinance our existing debt on reasonable terms, or at all. We have experienced, and we believe we will continue to experience, increasing competition for the supply of used textbooks from other companies, including other textbook wholesalers and from student-to-student transactions, increasing competition from alternative media and alternative sources of textbooks for students, competition for contract-management opportunities and other challenges. We also believe that we will continue to face challenges and opportunities related to acquisitions. Finally, we are uncertain what impact the current economy might have on our business. Despite these challenges, we expect that we will continue to grow EBITDA on a consolidated basis in fiscal year 2011. We also expect that our capital expenditures will remain modest for a company of our size.

Fiscal Year Ended March 31, 2010 Compared With Fiscal Year Ended March 31, 2009.

Revenues. Revenues for the fiscal years ended March 31, 2010 and 2009 and the corresponding change in revenues were as follows:

		Fiscal Years Ended								Change
		March 31, 2010				March 31, 2009				Amount				Percentage
Bookstore Division		$	472,492,275			$	472,038,009			$	454,266				0.1	%
Textbook Division			140,592,220				147,287,779				(6,695,559	)			(4.5	)%
Complementary Services Division			35,470,836				34,233,883				1,236,953				3.6	%
Intercompany Eliminations			(43,061,718	)			(42,843,490	)			(218,228	)			0.5	%
		$	605,493,613			$	610,716,181			$	(5,222,568	)			(0.9	)%

For the fiscal year ended March 31, 2010, Bookstore Division revenues increased $0.5 million, or 0.1%, from the fiscal year ended March 31, 2009. The increase in Bookstore Division revenues was primarily attributable to the addition of 44 bookstore locations through acquisitions or start-ups since April 1, 2008. The new bookstores provided an additional $21.6 million of revenue for the fiscal year ended March 31, 2010. Same-store sales for the fiscal year ended March 31, 2009 decreased $11.5 million, or 2.6%, from the fiscal year ended March 31, 2009, primarily due to decreased new and used textbook revenues and to a smaller decrease in clothing and insignia wear revenues. The same-store sale decrease in new and used textbooks is partly attributable to the rental program implemented in the fourth quarter of fiscal 2010 in our off-campus stores. If the books rented would have been sold instead, we estimate that same-store sales would have been approximately $4.4 million higher, lowering the same-store sales decrease to 1.6% for the current fiscal year. We define same-store sales for the fiscal year ended March 31, 2010 as sales from any store, even if expanded or relocated, that has been operated by us since the start of fiscal year 2009. Finally, revenues declined $9.6 million as a result of certain lost contract-managed stores and store closings since April 1, 2008.

For the fiscal year ended March 31, 2010, Textbook Division revenues decreased $6.7 million, or 4.5%, from the fiscal year ended March 31, 2009, due primarily to an approximate 4.8% decrease in units sold, which was slightly offset by an approximate 0.2% increase in the average price per book sold. Complementary Services Division revenues increased $1.2 million, or 3.6%, from the year ended March 31, 2009, as increases in the distance education and e-commerce services businesses were mostly offset by a decrease in revenues from our consulting business. Intercompany eliminations for the fiscal year ended March 31, 2010 decreased $0.2 million from the fiscal year ended March 31, 2009.

Gross profit. Gross profit for the fiscal year ended March 31, 2010 decreased $4.0 million, or 1.7%, to $235.3 million from $239.3 million for the fiscal year ended March 31, 2009. The decrease in gross profit was primarily attributable to the decrease in revenues in the Textbook Division. The consolidated gross margin percentage decreased slightly to 38.9% for the fiscal year ended March 31, 2010 from 39.2% for the fiscal year ended March 31, 2009 primarily due to a decrease in gross margin percentage in the Textbook Division.

Selling, general and administrative expenses. Selling, general and administrative expenses for the fiscal year ended March 31, 2010 decreased $6.4 million, or 3.8%, to $161.9 million from $168.3 million for the fiscal year ended March 31, 2009. Selling, general and administrative expenses as a percentage of revenues were 26.7% and 27.6% for the fiscal years ended March 31, 2010 and 2009, respectively. The decrease in selling, general and administrative expenses includes a $10.3 million decrease in personnel costs and a $1.6 million decrease in advertising and travel expenses, which were primarily due to cost cutting measures implemented during the last quarter of fiscal 2009. These decreases were partially offset by a $4.2 million increase in commission expense, primarily due to an increase in sales on the internet involving third-party websites and a $1.8 million increase in rent, primarily due to an increase in the number of bookstores in the Bookstore Division.

Earnings before interest, taxes, depreciation, amortization, goodwill impairment, and loss on early extinguishment of debt (Adjusted EBITDA). Adjusted EBITDA for the fiscal years ended March 31, 2010 and 2009 and the corresponding change in Adjusted EBITDA were as follows:

		Fiscal Years Ended								Change
		March 31, 2010				March 31, 2009				Amount				Percentage
Bookstore Division		$	45,685,171			$	44,029,528			$	1,655,643				3.8	%
Textbook Division			37,050,519				39,009,073				(1,958,554	)			(5.0	)%
Complementary Services Division			2,301,001				1,320,700				980,301				74.2	%
Corporate Administration			(11,597,268	)			(13,326,971	)			1,729,703				13.0	%
		$	73,439,423			$	71,032,330			$	2,407,093				3.4	%

Bookstore Division Adjusted EBITDA increased $1.7 million, or 3.8%, primarily due to lower selling, general and administrative expenses. The $2.0 million, or 5.0%, decrease in Textbook Division Adjusted EBITDA was primarily due to the previously mentioned decrease in revenues and gross profit, which were partially offset by a decrease in selling, general and administrative expenses primarily as a result of cost cutting measures implemented during the last quarter of fiscal 2009. Complementary Services Division Adjusted EBITDA increased $1.0 million primarily due to improved results in our e-commerce and distance education businesses which was partially offset by lower results in our consulting business. Corporate Administration’s Adjusted EBITDA loss decreased $1.7 million primarily due to expenses incurred in the prior year that were not incurred again in fiscal 2010, including $1.1 million of costs associated with a voluntary early retirement program and severance.

For an explanation of why EBITDA and Adjusted EBITDA are useful measures in evaluating our operating results and provide additional information for determining our ability to meet debt service requirements, see “Adjusted EBITDA Results” earlier in this Item. The following presentation reconciles net income (loss), which we believe to be the closest GAAP performance measure, to EBITDA and Adjusted EBITDA and reconciles EBITDA and Adjusted EBITDA to net cash flows from operating activities, which we believe to be the closest GAAP liquidity measure, and also sets forth net cash flows from investing and financing activities as presented in the Consolidated Statements of Cash Flows included in Item 8, Financial Statements and Supplementary Data:

		Fiscal Years Ended
		March 31, 2010				March 31, 2009
Net income (loss)			7,362,198				(94,928,668	)
Interest expense, net			40,499,120				32,553,689
Income tax expense			3,142,094				7,448,658
Depreciation and amortization			19,370,252				18,986,651
EBITDA			70,373,664				(35,939,670	)
Goodwill impairment			—				106,972,000
Loss on early extinguishment of debt			3,065,759				—
Adjusted EBITDA (1)		$	73,439,423			$	71,032,330
Share-based compensation			1,106,882				1,288,543
Interest income			180,709				426,536
Provision for losses on receivables			1,399,466				1,366,979
Cash paid for interest			(29,102,221	)			(30,653,694	)
Cash paid for income taxes			(3,155,473	)			(9,930,165	)
Loss on disposal of assets			235,803				124,871
Tax expense due to parent			(3,064,522	)			(3,160,038	)
Changes in operating assets and liabilities, net of effect of acquisitions (2)			(4,803,359	)			1,170,551
Net Cash Flows from Operating Activities		$	36,236,708			$	31,665,913
Net Cash Flows from Investing Activities		$	(8,765,940	)		$	(14,898,403	)
Net Cash Flows from Financing Activities		$	(10,536,611	)		$	(2,055,498	)

Depreciation expense. Depreciation expense for the fiscal year ended March 31, 2010 increased $0.9 million, or 12.0%, to $8.5 million from $7.6 million for the fiscal year ended March 31, 2009, due primarily to new bookstores added since April 1, 2008 and bookstore remodeling projects.

Amortization expense. Amortization expense for the fiscal year ended March 31, 2010 decreased $0.5 million, or 4.7%, to $10.9 million from $11.4 million for the fiscal year ended March 31, 2009, primarily due to a $0.5 million decrease in amortization of covenant not to compete agreements arising from bookstore acquisitions.

Goodwill impairment. During the fourth quarter of 2009, we recognized a non-cash charge of $107.0 million related to the impairment of goodwill. The impairment, which was determined during our 2009 annual impairment testing of goodwill conducted at March 31, was due to the economic downturn and changes in some variables associated with the judgments, assumptions and estimates made by us in assessing the valuation of our goodwill, including lower market multiples. No impairment charge was recorded for the year ended March 31, 2010.

Interest expense, net. Interest expense, net for the fiscal year ended March 31, 2010 increased $7.9 million, or 24.4%, to $40.5 million from $32.6 million for the fiscal year ended March 31, 2009, due primarily to a $5.7 million increase in interest on the Term Loan and Senior Secured Notes mainly due to higher interest rates and a $2.6 million increase in amortization of additional prepaid loan costs related to the issuance of the Senior Secured Notes and entering into the ABL Credit Agreement. These increases were partially offset by a $0.6 million decline in interest on the Revolving Credit Facility due to lower outstanding indebtedness.

Loss on early extinguishment of debt. The loss on extinguishment of debt of $3.1 million for the fiscal year ended March 31, 2010 relates to the write-off of debt issue costs as a result of the termination of the Term Loan and Revolving Credit Facility.

Income taxes. Income tax expense for the fiscal year ended March 31, 2010 decreased $4.3 million to $3.1 million from $7.4 million for the fiscal year ended March 31, 2009. Our effective tax rate for the fiscal years ended March 31, 2010 and 2009 was 29.9% and (8.5)%, respectively. Our effective tax rate for fiscal year 2010 differs from the statutory tax rate primarily due to the adjustment of the deferred tax rate and the change in NOL carryforward benefit. The effective tax rate would have been 41.4% without the effect of the adjustment to the deferred tax rate and change in NOL carryforward benefit. Our effective tax rate for fiscal year 2009 differs from the statutory tax rate primarily as a result of a pre-tax earnings charge for non-deductible goodwill impairment. Excluding the impact of the goodwill impairment charge, which was all attributed to non-deductible goodwill and as such is treated as a permanent difference for income tax purposes, our effective tax rate would have been 38.2% for the fiscal year ended March 31, 2009.

Fiscal Year ended March 31, 2009 Compared With Fiscal Year ended March 31, 2008.

Revenues. Revenues for the fiscal years ended March 31, 2009 and 2008 and the corresponding change in revenues were as follows:

		Fiscal Years Ended								Change
		March 31, 2009				March 31, 2008				Amount				Percentage
Bookstore Division		$	472,038,009			$	454,374,873			$	17,663,136				3.9	%
Textbook Division			147,287,779				139,685,035				7,602,744				5.4	%
Complementary Services Division			34,233,883				34,372,223				(138,340	)			(0.4	)%
Intercompany Eliminations			(42,843,490	)			(47,184,345	)			4,340,855				(9.2	)%
		$	610,716,181			$	581,247,786			$	29,468,395				5.1	%

For the fiscal year ended March 31, 2009, Bookstore Division revenues increased $17.7 million, or 3.9%, from the fiscal year ended March 31, 2008. The increase in Bookstore Division revenues was primarily attributable to the addition of 47 bookstore locations through acquisitions or start-ups since April 1, 2007. The new bookstores provided an additional $34.1 million of revenue for the fiscal year ended March 31, 2009. Same-store sales for the fiscal year ended March 31, 2009 decreased $9.0 million, or 2.1%, from the fiscal year ended March 31, 2008, primarily due to decreased new textbook and clothing and insignia wear revenues which offset a small increase in revenues from used textbooks. We define same-store sales for the fiscal year ended March 31, 2009 as sales from any store, even if expanded or relocated, that has been operated by us since the start of fiscal year 2008. Finally, revenues declined $7.5 million as a result of certain lost contract-managed bookstores and store closings since April 1, 2007.

For the fiscal year ended March 31, 2009, Textbook Division revenues increased $7.6 million, or 5.4%, from the fiscal year ended March 31, 2008 due primarily to an approximate 6.7% increase in the average price per book sold, which was offset in part by an approximate 1.7% decrease in units sold. Complementary Services Division revenues decreased slightly from the year ended March 31, 2008, as decreases in the systems and consulting businesses were mostly offset by an increase in revenue from our e-commerce services and distance education businesses. Primarily as a result of a shift in Textbook Division revenues from our own bookstores to independent bookstores (external customers), intercompany revenues and the corresponding intercompany eliminations for the fiscal year ended March 31, 2009 decreased $4.3 million from the fiscal year ended March 31, 2008.

Gross profit. Gross profit for the fiscal year ended March 31, 2009 increased $12.2 million, or 5.4%, to $239.3 million from $227.1 million for the fiscal year ended March 31, 2008. The increase in gross profit was primarily attributable to the increase in revenues, as the consolidated gross margin percentage increased only slightly to 39.2% for the fiscal year ended March 31, 2009 from 39.1% for the fiscal year ended March 31, 2008. The increase in consolidated gross margin percentage was primarily attributable to improved margins in the Textbook Division offset by slightly lower gross margins in the Bookstore Division.

Selling, general and administrative expenses. Selling, general and administrative expenses for the fiscal year ended March 31, 2009 increased $11.1 million, or 7.1%, to $168.3 million from $157.2 million for the fiscal year ended March 31, 2008. Selling, general and administrative expenses as a percentage of revenues were 27.6% and 27.0% for the fiscal years ended March 31, 2009 and 2008, respectively. The increase in selling, general and administrative expenses includes a $4.9 million increase in personnel costs and a $3.6 million increase in rent which was primarily attributable to our continued growth in the Bookstore Division. The increase in personnel costs was partially due to approximately $1.1 million in personnel costs resulting from a voluntary early retirement plan and severance expenses in fiscal year 2009. Commission and shipping expenses also increased $0.9 million and $0.7 million, respectively, primarily due to increased Bookstore Division sales on the internet involving third-party websites. Also included in the increase in selling, general and administrative expenses was $0.2 million in legal expenses related to our Senior Credit Facility amendment in February, 2009.

Earnings before interest, taxes, depreciation, amortization, and goodwill impairment (Adjusted EBITDA). Adjusted EBITDA for the fiscal years ended March 31, 2009 and 2008 and the corresponding change in Adjusted EBITDA were as follows:

		Fiscal Years Ended								Change
		March 31, 2009				March 31, 2008				Amount				Percentage
Bookstore Division		$	44,029,528			$	45,941,624			$	(1,912,096	)			(4.2	)%
Textbook Division			39,009,073				33,731,382				5,277,691				15.6	%
Complementary Services Division			1,320,700				1,558,414				(237,714	)			(15.3	)%
Corporate Administration			(13,326,971	)			(11,280,477	)			(2,046,494	)			(18.1	)%
		$	71,032,330			$	69,950,943			$	1,081,387				1.5	%

Bookstore Division Adjusted EBITDA decreased $1.9 million, or 4.2%, as increased revenues were offset by a slightly lower gross profit percentage and slightly higher selling, general and administrative expenses as a percentage of revenues. The $5.3 million, or 15.6%, increase in Textbook Division Adjusted EBITDA was primarily due to the previously mentioned increase in revenues and gross profits, as well as control of selling, general and administrative expenses. Complementary Services Division Adjusted EBITDA decreased $0.2 million, or 15.3%, primarily due to lower results in our systems and distance education businesses which was partially offset by improved results in our e-commerce business. Corporate Administration’s Adjusted EBITDA loss increased $2.0 million primarily due to $1.1 million in current year costs associated with the voluntary early retirement plan and severance, and legal expenses related to the February, 2009 refinancing.

For an explanation of why EBITDA and Adjusted EBITDA are useful measures in evaluating our operating results and provide additional information for determining our ability to meet debt service requirements, see “Adjusted EBITDA Results” earlier in this Item. The following presentation reconciles net income (loss), which we believe to be the closest GAAP performance measure, to EBITDA and Adjusted EBITDA and reconciles EBITDA and Adjusted EBITDA to net cash flows from operating activities, which we believe to be the closest GAAP liquidity measure, and also sets forth net cash flows from investing and financing activities as presented in the Consolidated Statements of Cash Flows included in Item 8, Financial Statements and Supplementary Data:

		Fiscal Years Ended
		March 31, 2009				March 31, 2008
Net income (loss)			(94,928,668	)			12,456,023
Interest expense, net			32,553,689				32,424,742
Income tax expense			7,448,658				7,418,339
Depreciation and amortization			18,986,651				17,651,839
EBITDA			(35,939,670	)			69,950,943
Goodwill impairment			106,972,000				—
Adjusted EBITDA		$	71,032,330			$	69,950,943
Share-based compensation			1,288,543				1,040,599
Interest income			426,536				1,332,497
Provision for losses on receivables			1,366,979				468,007
Cash paid for interest			(30,653,694	)			(31,755,319	)
Cash paid for income taxes			(9,930,165	)			(13,030,853	)
Loss on disposal of assets			124,871				284,891
Tax expense due to parent			(3,160,038	)			(236,872	)
Changes in operating assets and liabilities, net of effect of acquisitions (1)			1,170,551				(7,190,132	)
Net Cash Flows from Operating Activities		$	31,665,913			$	20,863,761
Net Cash Flows from Investing Activities		$	(14,898,403	)		$	(22,179,160	)
Net Cash Flows from Financing Activities		$	(2,055,498	)		$	(2,341,021	)

Depreciation expense. Depreciation expense for the fiscal year ended March 31, 2009 increased $0.4 million, or 5.5%, to $7.6 million from $7.2 million for the fiscal year ended March 31, 2008, due primarily to growth in the Bookstore Division (including new bookstores added since April 1, 2007 and bookstore remodeling projects).

Amortization expense. Amortization expense for the fiscal year ended March 31, 2009 increased $1.0 million, or 9.0%, to $11.4 million from $10.4 million for the fiscal year ended March 31, 2008, due in part to a $0.4 million increase in amortization of covenant not to compete agreements arising from bookstore acquisitions, a $0.3 million increase in amortization of contract-managed acquisition costs primarily associated with contract-managed bookstore acquisitions/renewals occurring since April 1, 2007 and $0.2 million of amortization of certain contractual rights associated with a September 1, 2007 agreement with a third-party software company.

Goodwill impairment. During the fourth quarter of 2009, we recognized a non-cash charge of $107.0 million related to the impairment of goodwill. The impairment, which was determined during our 2009 annual impairment testing of goodwill, was due to the economic downturn and changes in some variables associated with the judgments, assumptions and estimates made by us in assessing the valuation of our goodwill, including lower market multiples. No impairment charge was recorded for the year ended March 31, 2008.

Interest expense, net. Interest expense, net for the fiscal year ended March 31, 2009 increased $0.2 million, or 0.4%, to $32.6 million from $32.4 million for the fiscal year ended March 31, 2008, due primarily to a $0.9 million decline in interest income as a result of lower interest rates on invested funds, which was offset by a $0.7 million decrease in Term Loan interest expense as a result of lower variable interest rates.

Income taxes. Income tax expense for the fiscal year ended March 31, 2009 was comparable to fiscal year ended March 31, 2008 at $7.4 million. Our effective tax rate for the fiscal years ended March 31, 2009 and 2008 was (8.5)% and 37.3%, respectively. Our effective tax rate for fiscal year 2009 differs from the statutory tax rate primarily as a result of a pre-tax earnings charge for non-deductible goodwill impairment. Excluding the impact of the goodwill impairment charge, which was all attributed to non-deductible goodwill and as such is treated as a permanent difference for income tax purposes, our effective tax rate would have been 38.2% for the fiscal year ended March 31, 2009 as compared to 37.3% for the fiscal year ended March 31, 2008. The lower effective tax rate in fiscal year 2008 is due primarily to the recognition of certain state income tax benefits in connection with a state tax incentive program.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to returns, bad debts, inventory valuation and obsolescence, goodwill and intangible assets, rebate programs, income taxes, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition. We recognize revenue from Textbook Division sales at the time of shipment. We have established a program which, under certain conditions, enables our customers to return textbooks. We record reductions to revenue and costs of sales for the estimated impact of textbooks with return privileges which have yet to be returned to the Textbook Division. External customer returns over the past three fiscal years have ranged from approximately 22.9% to 24.8% of sales. Additional reductions to revenue and costs of sales may be required if the actual rate of returns exceeds the estimated rate of returns. Consistent with prior years, the estimated rate of returns is determined utilizing actual historical return experience. The accrual rate for customer returns at March 31, 2010 was approximately 24.5% of sales.

Bad Debts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Consistent with prior years, in determining the adequacy of the allowance, we analyze the aging of the receivable, the customer’s financial position, historical collection experience, and other economic and industry factors. Net charge-offs over the past three fiscal years have been between $0.5 million and $1.4 million, or 0.1% to 0.3%, of revenues. We have maintained an allowance for doubtful accounts between $1.0 million and $1.2 million, or 0.2% to 0.3%, of revenues over the past three fiscal years. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory Valuation and Obsolescence. Inventories, including rental inventory, are stated at the lower of cost or market. The cost of used textbook inventories is determined using the weighted-average method. Our Bookstore Division uses the retail inventory method to determine cost for new textbooks and non-textbook inventories. The cost of other inventories is determined on a first-in, first-out cost method. Consistent with prior years, we account for inventory obsolescence based upon assumptions about future demand and market conditions. At March 31, 2010, used textbook inventory was subject to an obsolescence reserve of $2.3 million. For the prior three fiscal years, the obsolescence reserve was between $2.3 million and $2.4 million. If actual future demand or market conditions are less favorable than those projected by us, inventory write-downs may be required. In determining inventory adjustments, we consider amounts of inventory on hand, projected demand, new editions, and industry factors.

Goodwill and Intangible Assets. The March 4, 2004 Transaction and our acquisitions of college bookstores result in the application of the acquisition method of accounting as of the acquisition date. In certain circumstances, our management performs valuations where appropriate to determine the fair value of assets acquired and liabilities assumed. The goodwill in such transactions is determined by calculating the difference between the consideration transferred and the fair value of net assets acquired. We evaluate the impairment of the carrying value of our goodwill and identifiable intangibles in accordance with applicable accounting standards, including the Intangibles — Goodwill and Other and the Property, Plant and Equipment Topics of the FASB ASC. In accordance with such standards, we evaluate impairment on goodwill and certain identifiable intangibles annually at March 31 and evaluate impairment on all intangibles whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. We are required to make certain assumptions and estimates regarding the fair value of intangible assets when assessing such assets for impairment. We evaluate goodwill at the reporting unit level and have identified our reportable segments, the Textbook Division, Bookstore Division and Complementary Services Division, as our reporting units. Our reporting units are determined based on the way management organizes the segments for making operating decisions and assessing performance. Management has organized our reporting segments based upon differences in products and services provided.

In the first step of our goodwill impairment test, fair value is determined using a market approach based primarily on an EBITDA multiple, and is deemed to be the most indicative of the Company’s fair value. The EBITDA multiple approach requires that we estimate a certain valuation multiple of EBITDA derived from comparable companies and apply that multiple to our latest twelve month pro forma EBITDA. We reviewed comparable company information to determine the EBITDA multiple and concluded that 6.76x was an appropriate EBITDA multiple at March 31, 2010 and 7.0x was appropriate at March 31, 2009. This total company fair value is allocated to the reporting units based upon their percentage of EBITDA. The fair value was also calculated using the income approach (discounted cash flow approach) and we concluded that it was supportive of the fair value based upon the EBITDA multiple approach. If we fail the first step of the goodwill impairment test, we are required, in the second step, to estimate the fair value of reporting unit assets and liabilities, including intangible assets, to derive the fair value of the reporting unit’s goodwill.

Due to the economic downturn and changes in comparable company market multiples, we determined in the first step of our goodwill impairment test conducted at March 31, 2009 that the carrying values of the Textbook and Bookstore Divisions exceeded their fair values, indicating that goodwill may be impaired. Having determined that goodwill may be impaired, we performed the second step of the goodwill impairment test which involves calculating the implied fair value of goodwill by allocating the fair value of the reporting unit to all of its assets and liabilities other than goodwill (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of goodwill. As a result, we recorded an impairment charge of $107.0 million in fiscal year 2009. The carrying value of goodwill in excess of the implied fair value was $67.0 million and $40.0 million for the Textbook and Bookstore Divisions, respectively. At March 31, 2010, the date of the most recent step one test, after adjusting the carrying values for goodwill impairment, the fair value of the Textbook Division exceeded the carrying value of $210.7 million by 4.8% and the Bookstore Division fair value exceeded the carrying value of $244.5 million by 4.7%. We continue to monitor events and circumstances which may affect the fair values of both reporting units, including current market conditions, and we believe that both reporting units are still at risk of failing step one of the impairment test.

We are also required to make certain assumptions and estimates when assigning an initial value to covenants not to compete arising from bookstore acquisitions. Changes in the fact patterns underlying such assumptions and estimates could ultimately result in the recognition of impairment losses on intangible assets.

We monitor relevant circumstances, including industry trends, general economic conditions, and the potential impact that such circumstances might have on the valuation of our goodwill and identifiable intangibles. It is possible that changes in such circumstances, or in the numerous variables associated with the judgments, assumptions and estimates made by us in assessing the appropriate valuation of our goodwill and identifiable intangibles, including a further deterioration in the economy or debt markets or a significant delay in the expected recovery, could in the future require us to further write down a portion of our goodwill or write down a portion of our identifiable intangibles and record related non-cash impairment charges. If we were to have used a multiple of 6.44x or below at March 31, 2010, the first step of the goodwill impairment test would have indicated that goodwill may be impaired and we would have performed the second step of the goodwill impairment test to determine the goodwill impairment, if any.

Accrued Incentives. Our Textbook Division offers certain incentive programs to its customers that allow the participating customers the opportunity to earn rebates for used textbooks sold to the Textbook Division. The rebates can be redeemed in a number of ways, including to pay for freight charges on textbooks sold to the customer or to pay for certain products or services we offer through our Complementary Services Division. The customer can also use the rebates to pay for the cost of textbooks sold by the Textbook Division to the customer; however, a portion of the rebates earned by the customer are forfeited if the customer chooses to use rebates in this manner. If the customer fails to comply with the terms of the program, rebates earned

during the year are forfeited. Significant judgment is required in estimating the expected level of forfeitures on rebates earned. Although we believe that our estimates of anticipated forfeitures, which have consistently been based upon historical experience, are reasonable, actual results could differ from these estimates resulting in an ultimate redemption of rebates which differs from that which is reflected in accrued incentives in the consolidated financial statements. For the past three fiscal years, actual forfeitures have ranged between 9.4% and 16.6% of rebates earned within those years. After adjusting for estimated forfeitures, rebates earned are accrued at a rate of approximately 13.5% of the dollar value of eligible textbooks purchased by the Textbook Division. Accrued incentives at March 31, 2010 were $6.3 million, including estimated forfeitures, however, if we accrued for rebates earned and unused as of March 31, 2010, assuming no forfeitures, our accrued incentives would have been $7.0 million.

Income Taxes. We account for income taxes by recording taxes payable or refundable for the current fiscal year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in our consolidated financial statements or the consolidated income tax returns. Significant judgment is required in determining the provision for income taxes and related accruals, deferred tax assets, and deferred tax liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the consolidated income tax returns are subject to audit by various tax authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates resulting in a final tax outcome that may be different from that which is reflected in the consolidated financial statements.

Changes in Accounting Standards. In June 2009, the FASB Codification became the single source of authoritative GAAP. The Codification did not create any additional GAAP standards but incorporated existing accounting and reporting standards into a new topical structure with a new referencing system to identify authoritative accounting standards, replacing the prior references to Statement of Financial Accounting Standards, Emerging Issues Task Force, FASB Staff Position, etc. Authoritative standards included in the Codification are designated by their topical reference, and new standards are designated as Accounting Standards Updates with a year and assigned sequence number. References to prior standards have been updated in this annual report for the fiscal year ended March 31, 2010 to reflect the new referencing system.

LIQUIDITY AND CAPITAL RESOURCES

Financing Activities

On October 2, 2009, in conjunction with the completion of our offering of the Senior Secured Notes and payment in full of the Term Loan, we entered into the ABL Credit Agreement which provides for the ABL Facility and replaced the Revolving Credit Facility, effectively terminating the Senior Credit Facility. The ABL Facility is secured by a first priority interest in substantially all of our and our subsidiaries’ property and assets, which also secure the Senior Secured Notes on a second priority basis. The ABL Facility is scheduled to mature on the earlier of October 2, 2012 and the date that is 91 days prior to the earliest maturity of the Senior Secured Notes (due December 1, 2011), the Senior Subordinated Notes (due March 15, 2012), NBC’s Senior Discount Notes (due March 15, 2013), or any refinancing thereof. Borrowings under the ABL Facility are subject to the Eurodollar interest rate, not to be less than 1.5%, plus an applicable margin ranging from 4.25% to 4.75%, or the base interest rate plus an applicable margin ranging from 3.25% to 3.75%. In addition, the applicable margin will increase 1.5% during the time periods from April 15 to June 29 and from December 1 to January 29 of each year. There also is a commitment fee ranging from 0.75% to 1.0% for the daily average unused amount. Costs of $10.2 million associated with the issuance of the Senior Secured Notes and entering into the ABL Credit Agreement were capitalized as debt issue costs to be amortized to interest expense over the remaining life of the debt instruments. Debt issue costs of $3.1 million were written off as a result of the termination of the Term Loan and Revolving Credit Facility.

Effective February 3, 2009, the Senior Credit Facility, which has been terminated as described earlier, was amended to, among other things, (i) extend the maturity date of the Revolving Credit Facility to May 31, 2010, (ii) decrease the maximum borrowing capacity under the Revolving Credit Facility from $85.0 million to $65.0 million, (iii) amend certain definitions and financial covenants under the Senior Credit Facility, including limiting future acquisitions to contract-managed stores, and (iv) increase the interest rate on the Term Loan and Revolving Credit Facility. The applicable margin on the Revolving Credit Facility and Term Loan increased to 6.0% on Eurodollar borrowings and 5.0% on Base rate borrowings. The Eurodollar interest rate was not to be less than 3.25% plus the applicable margin. The interest rate on Base rate borrowings was the greater of a) Prime rate, b) Federal Funds rate plus 0.5% or c) the one-month Eurodollar loan rate plus 1.0%, not to be less than 4.25%, plus the applicable margin. The commitment fee rate increased to 0.75%. The modifications to the Senior Credit Facility resulted in the payment of $4.0 million in costs associated with such modifications, which were capitalized as debt issue costs to be amortized to interest expense over the remaining life of the debt instruments.

In conjunction with the Senior Credit Facility amendment on February 3, 2009, NBC entered into a Stock Subscription Agreement with NBC Holdings Corp. (“Holdings”), pursuant to which Holdings purchased 10,000 shares of a newly created series of NBC preferred stock, par value $0.01 per share, for $1,000 per share, for an aggregate purchase price of $10.0 million. As a result of the Stock Subscription Agreement, the Company received a $10.0 million capital contribution from NBC.

Our primary liquidity requirements are for debt service under the ABL Credit Agreement, which replaced the Revolving Credit Facility, the Senior Secured Notes, which were issued on October 2, 2009 in conjunction with the payment in full of the Term Loan, the Senior Subordinated Notes and other outstanding indebtedness, dividends to NBC to pay interest on its Senior Discount Notes, for working capital, for income tax payments, for capital expenditures and for certain acquisitions. We have historically funded these requirements primarily through internally generated cash flows and funds borrowed under our revolving credit facility. At March 31, 2010, our total indebtedness was $377.6 million, consisting of a $75.0 million ABL Facility which was unused at March 31, 2010, $200 million of Senior Secured Notes with unamortized discount of $0.8 million, $175.0 million of Senior Subordinated Notes, and $3.4 million of other indebtedness, including capital lease obligations. To provide additional financing to fund the March 4, 2004 Transaction, NBC issued Senior Discount Notes, the balance of which at March 31, 2009 was $77.0 million (face value).

Principal and interest payments under the ABL Facility, the Senior Secured Notes, the Senior Subordinated Notes, and NBC’s Senior Discount Notes represent significant liquidity requirements for us. An excess cash flow payment of $6.0 million for fiscal year ended March 31, 2009 under the Senior Credit Facility was paid in September 2009.

Loans under the Senior Credit Facility were subject to interest at floating rates based upon the borrowing option selected by us. On July 15, 2005, we entered into an interest rate swap agreement to essentially convert a portion of the variable rate Term Loan into debt with a fixed rate of 6.844% (4.344% plus an applicable margin as defined by the Senior Credit Facility). This agreement was effective as of September 30, 2005 and expired September 30, 2008.

The Senior Secured Notes require semi-annual interest payments at a fixed rate of 10.0% and mature on December 1, 2011. The Senior Subordinated Notes require semi-annual interest payments at a fixed rate of 8.625% and mature on March 15, 2012. NBC’s Senior Discount Notes require semi-annual cash interest payments commencing September 15, 2008 at a fixed rate of 11.0% and mature on March 15, 2013.

In July 2007, a bookstore location was relocated, the new property lease for which has been classified as a capital lease. This lease expires in fiscal year 2018 and contains two five-year options to renew. The capital lease obligation and corresponding property recorded at inception of the lease totaled $2.2 million. In November 2006, two bookstore locations were acquired, the property leases for which have been classified as capital leases. These leases expire in fiscal year 2012 and contain multiple options to renew every five years. The capital lease obligations and corresponding property recorded at inception of the leases totaled $1.1 million.

Investing Cash Flows

Our capital expenditures were $5.4 million, $8.0 million and $7.3 million for the fiscal years ended March 31, 2010, 2009 and 2008, respectively. Capital expenditures consist primarily of leasehold improvements and furnishings for new bookstores, bookstore renovations, computer upgrades and miscellaneous warehouse improvements. The ABL Credit Agreement does not have a limitation on capital expenditures other than as part of the fixed charge coverage ratio. We expect capital expenditures to be between $6.0 million and $7.0 million for fiscal year 2011.

Business acquisition and contract-management renewal expenditures were $2.8 million, $6.3 million and $14.7 million for the fiscal years ended March 31, 2010, 2009 and 2008, respectively. During the fiscal year ended March 31, 2010, 14 bookstore locations were acquired in 11 separate transactions (all of which were contract-managed locations). During the fiscal year ended March 31, 2009, 22 bookstore locations were acquired in 19 separate transactions (19 of which were contract-managed locations). During the fiscal year ended March 31, 2008, we acquired 20 bookstore locations in 14 separate transactions (10 of which were contract-managed locations). Our ability to make acquisition expenditures is subject to certain restrictions under the ABL Credit Agreement.

During the fiscal years ended March 31, 2010 and 2009 we capitalized $0.6 million and during the fiscal year ended March 31, 2008, we capitalized $0.3 million in software development costs associated with new software products and enhancements to existing software products.

Effective September 1, 2007, we entered into an agreement whereby we agreed to pay $1.7 million over a period of thirty-six months to a software company in return for certain rights related to that company’s products that are designed to enhance web-based sales. This other identifiable intangible is being amortized on a straight-line basis over the thirty-six month base term of the agreement. The asset and corresponding liability were recorded based upon the present value of the future payments assuming an imputed interest rate of 6.7%, resulting in a discount of $0.1 million which will be recorded as interest expense over the base term of the agreement utilizing the effective interest method of accounting.

In addition to the previously mentioned business acquisition and contract-management renewal expenditures, the contract-managed acquisition costs during the fiscal year ended March 31, 2010 included $0.6 million of unpaid consideration. The purchase price of one of the bookstores during the fiscal year ended March 31, 2008 included $0.7 million of contingent consideration, which is paid to the previous owner on a monthly basis and is calculated as a percentage of revenues generated by the acquired bookstore each month. Such payments totaled $133,474, $123,972 and $41,219 for the fiscal years ended March 31, 2010, 2009 and 2008, respectively.

Operating Cash Flows

Our principal sources of cash to fund our future operating liquidity needs will be cash from operating activities and borrowings under the ABL Facility. Usage of the ABL Facility to meet our liquidity needs fluctuates throughout the fiscal year due to our distinct buying and selling periods, increasing substantially at the end of each college semester (May and December). For the fiscal year ended March 31, 2010, weighted-average borrowings under our revolving credit facilities approximated $4.0 million, with actual borrowings ranging from a low of no borrowings to a high of $28.6 million. Net cash flows from operating activities for the fiscal year ended March 31, 2010 were $36.2 million, up $4.5 million from $31.7 million for the fiscal year ended March 31, 2009. The increase in net cash flows from operating activities is due primarily to a $6.5 million decrease in accounts receivable primarily due to a decrease in Bookstore Division receivables from publishers for returns and a decrease of $6.8 million in income taxes paid during the fiscal year ended March 31, 2010. The increase in net cash flows was partially offset by an $11.0 million increase in payments for inventories partially due to increased rental inventories in the Bookstore Division at March 31, 2010. Net cash flows from operating activities for the fiscal year ended March 31, 2009 were $31.7 million, an increase of $10.8 million from $20.9 million for the fiscal year ended March 31, 2008. The increase in net cash flows from operations was due primarily to a $9.5 million decrease in payments for inventories and a decrease of $3.1 million in income taxes paid during the fiscal ended March 31, 2009.

As of March 31, 2010, we had $61.0 million in cash available to help fund working capital requirements. At certain times of the year, we also invest in cash equivalents. Any investments in cash equivalents are subject to restrictions under the ABL Credit Agreement. The ABL Credit Agreement allows investments in (1) certain short-term securities issued by, or unconditionally guaranteed by, the federal government, (2) certain short-term deposits in banks that have combined capital and surplus of not less than $500 million, (3) certain short-term commercial paper of issuers rated at least A-1 by Standard & Poor’s or P-1 by Moody’s, (4) certain money market funds which invest exclusively in assets otherwise allowable under the ABL Credit Agreement and (5) certain other similar short-term investments. Although we invest in compliance with the restrictions under our credit agreement and generally seek to minimize the risk associated with investments by investing in investment grade, highly liquid securities, we cannot give assurances that the cash equivalents that are in or will be selected to be in our investment portfolio will not lose a portion of their value or become impaired in the future.

Covenant Restrictions

We have a substantial level of indebtedness. Our debt agreements impose significant financial restrictions, which could prevent us from incurring additional indebtedness and taking certain other actions and could result in all amounts outstanding being declared due and payable if we are not in compliance with such restrictions. Access to borrowings under the ABL Facility is subject to the calculation of a borrowing base, which is a function of eligible accounts receivable and inventory, up to the maximum borrowing limit (less outstanding letters of credit). The ABL Credit Agreement restricts our ability and the ability of certain of our subsidiaries to make investments, acquisitions, loans or advances and pay dividends, except that, among other things, we may pay dividends to NBC (i) in an amount not to exceed the amount of interest required to be paid on the Senior Discount Notes and (ii) to pay corporate overhead expenses not to exceed $250,000 per fiscal year and any taxes owed by NBC. In addition, under our ABL Facility, if availability, as defined in the ABL Credit Agreement, is less than the greater of 20% of the total revolving credit commitments and $15.0 million, we will be required to maintain a fixed charge coverage ratio of at least 1.10x measured for the last twelve-month period on a pro forma basis in order to maintain access to funds under the ABL Facility. At March 31, 2010, we had up to $75.0 million of total revolving credit commitments under the ABL Facility (less outstanding letters of credit and subject to a borrowing base). The calculated borrowing base as of March 31, 2010 was $44.7 million, of which $1.0 million was outstanding under a letter of credit and $43.7 million was unused. At March 31, 2010, our pro forma fixed charge coverage ratio was 1.5x.

The indenture governing the Senior Secured Notes restricts our ability and the ability of certain of our subsidiaries to pay dividends or make certain other payments, subject to certain exceptions, unless certain conditions are met, including (i) no default under the indenture has occurred, (ii) we and certain of our subsidiaries maintain a consolidated coverage ratio of 2.0 to 1.0 on a pro forma basis and (iii) the amount of the dividend or payment may not exceed 50% of aggregate income from January 1, 2004 to the end of the most recent fiscal quarter plus cash proceeds received from the issuance of stock less the aggregate of payments made under this restriction. The indentures governing the Senior Subordinated Notes and NBC’s Senior Discount Notes contain similar restrictions on our ability and the ability of certain of our subsidiaries and the ability of NBC to pay dividends or make certain other payments. In addition, if there is no availability under the restricted payment calculation mentioned above, but we maintain the 2.0 to 1.0 consolidated coverage ratio on a pro forma basis, we may make dividends to NBC to meet the interest payments on the Senior Discount Notes. If we do not maintain the 2.0 to 1.0 ratio on a pro forma basis, we may still make payments, including dividends, up to $15.0 million in the aggregate. At March 31, 2010, our pro forma consolidated coverage ratio calculated under the indenture to the Senior Subordinated Notes was 1.85 to 1.0 and the ratio calculated under the indenture to the Senior Secured Notes was 2.0 to 1.0. The pro forma consolidated coverage ratio calculated under the indenture to the Senior Subordinated Notes differs from the ratio calculated under the indenture to the Senior Secured Notes because the indenture to the Senior Subordinated Notes excludes debt issue cost amortization for all debt instruments outstanding at the March 4, 2004 Transaction date from the calculation and the indenture to the Senior Secured Notes excludes only debt issue cost amortization for the Senior Secured Notes and the ABL Facility from the same calculation. At March 31, 2010, the amount distributable under the most restrictive indenture was $10.8 million after applying the $4.2 million dividend we paid to NBC for the March 15, 2010 interest on NBC’s Senior Discount Notes. Such restrictions are not expected to affect our ability to meet our cash obligations for the next twelve months.

As of March 31, 2010, we were in compliance with all of our debt covenants.

Our debt covenants use EBITDA and Adjusted EBITDA in the ratio calculations mentioned above. For a discussion of EBITDA and Adjusted EBITDA, see “Adjusted EBITDA Results” earlier in this Item and for a presentation reconciling EBITDA and Adjusted EBITDA to net cash flows from operating activities, which we believe to be the closest GAAP liquidity measure, see “Fiscal Year Ended March 31, 2010 Compared With Fiscal Year Ended March 31, 2009” and “Fiscal Year Ended March 31, 2009 Compared With Fiscal Year Ended March 31, 2008” earlier in this Item.

Sources of and Needs for Capital

As of March 31, 2010, we had up to $75.0 million of total revolving credit commitments under the ABL Facility (less outstanding letters of credit and subject to a borrowing base). The calculated borrowing base as of March 31, 2010 was $44.7 million, of which $1.0 million was outstanding under a letter of credit and $43.7 million was unused. Amounts drawn under the ABL Facility may be used for working capital and general corporate purposes (including up to $10.0 million for letters of credit), subject to certain limitations.

On October 2, 2009, in conjunction with the completion of our offering of the Senior Secured Notes and payment in full of the Term Loan, we entered into the ABL Credit Agreement which provides for the ABL Facility and replaced the Revolving Credit Facility (collectively the “Refinancing”). Although our overall indebtedness did not materially increase upon consummation of the Refinancing, our liquidity requirements have increased, primarily due to increased interest payment obligations. After giving effect to the Refinancing, our three principal tranches of debt (the Senior Secured Notes, the ABL Facility and the Senior Subordinated Notes) each will mature within a period of six months of each other. The ABL Facility will mature on the earlier of October 2, 2012 and the date that is 91 days prior to the earliest maturity of the $200.0 million Senior Secured Notes (which mature on December 1, 2011), the $175.0 million Senior Subordinated Notes (which mature on March 15, 2012), NBC’s $77.0 million Senior Discount Notes (which mature on March 15, 2013), or any refinancing thereof. As a consequence, we may be required to refinance the other tranches of debt in our and NBC’s capital structure in order to refinance the ABL Facility. Due to our highly leveraged capital structure, in the absence of a significant improvement in our credit profile and/or the financial markets, we may not be able to refinance our indebtedness, or NBC may not be able to refinance its indebtedness, on terms acceptable to us.

Our ability to satisfy our debt obligations and to pay principal and interest on our debt, fund working capital and make anticipated capital expenditures will depend on our future performance, which is subject to general economic conditions and other factors, some of which are beyond our control. We believe that funds generated from operations, existing cash, and borrowings under the ABL Facility will be sufficient to finance our current operations, cash interest requirements, income tax payments, planned capital expenditures, and internal growth for the foreseeable future. Future acquisitions, if any, may require additional debt or equity financing. As noted previously, we also cannot give assurance that we will generate sufficient cash flow from operations or that future borrowings will be available under the ABL Facility in an amount sufficient to enable us to service our debt or to fund our liquidity needs.

Off-Balance Sheet Arrangements

As of March 31, 2010, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

The following tables present aggregated information as of March 31, 2010 regarding our contractual obligations and commercial commitments:

						Payments Due by Period
						Less Than				2-3				4-5				After 5
Contractual Obligations		Total				1 Year				Years				Years				Years
Long-term debt (1)		$	375,237,954			$	54,403			$	375,127,935			$	55,616			$	—
Interest on long-term debt			70,239,747				35,116,701				35,120,521				2,525				—
Capital lease obligations			3,226,790				846,053				982,976				620,311				777,450
Interest on capital lease obligations			804,053				231,847				311,557				179,425				81,224
Operating leases			80,384,000				19,630,000				29,807,000				15,875,000				15,072,000
Uncertain tax position liabilities			—				—				—				—				—
Total		$	529,892,544			$	55,879,004			$	441,349,989			$	16,732,877			$	15,930,674

		Total				Amount of Commitment Expiration Per Period
		Amounts				Less Than				2-3				4-5				Over 5
Other Commercial Commitments		Committed				1 Year				Years				Years				Years
Unused line of credit (2)		$	75,000,000			$	—			$	75,000,000			$	—			$	—

We have recorded other long-term liabilities of $2.3 million, which consist primarily of certain lease related liabilities of $1.2 million to appropriately recognize rent expense over the rental term, deferred payments related to acquisitions of $0.7 million and deferred compensation of $0.4 million, which are excluded from the preceding table primarily because we cannot reasonably estimate the timing of the long-term payments.

Transactions with Related and Certain Other Parties

In accordance with our debt covenants, we declared and paid $8.5 million in dividends to NBC during the fiscal years ended March 31, 2010 and 2009 to provide funding for interest due and payable on NBC’s $77.0 million 11% senior discount notes. There were no dividends declared or paid to NBC in fiscal year 2008.

In conjunction with the Senior Credit Facility amendment on February 3, 2009, NBC entered into a Stock Subscription Agreement with Holdings, pursuant to which Holdings purchased 10,000 shares of a newly created series of NBC preferred stock, par value $0.01 per share, for $1,000 per share, for an aggregate purchase price of $10.0 million. As a result of the Stock Subscription Agreement, the Company received a $10.0 million capital contribution from NBC.

Impact of Inflation

Our results of operations and financial condition are presented based upon historical costs. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe that the effects of inflation, if any, on our results of operations and financial condition have not been material. However, there can be no assurance that during a period of significant inflation, our results of operations will not be adversely affected.

Accounting Standards Not Yet Adopted

In January 2010, the FASB issued Accounting Standards Update 2010-06, “Improving Disclosures about Fair Value Measurements” (“Update 2010-06”). Update 2010-06 provides amendments to current standards to require new disclosures for transfers of assets and liabilities between Levels 1 and 2 and for activity in Level 3 fair value measurements. Furthermore, the update provides amendments to clarify that a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities and should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for those measurements that fall in either Level 2 or Level 3. Update 2010-06 becomes effective for us in fiscal year 2011. Management has determined that the update will not have a material impact on the consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605) — Multiple Deliverable Arrangements” (“Update 2009-13”). Update 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The update addresses how to separate deliverables and how to measure and allocate arrangement considerations to one or more units of account. Update 2009-13 becomes effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. An entity may elect to adopt the standard on a retrospective basis. We expect to apply this standard on a prospective basis beginning April 1, 2011. Management has determined that the update will not have a material impact on the consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update 2009-14, “Software (Topic 985) — Certain Revenue Arrangements That Include Software Elements” (“Update 2009-14”). Update 2009-14 clarifies what guidance should be used in allocating and measuring revenue for vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The amendments in this update do not affect software revenue arrangements that do not include tangible products nor do they affect software revenue arrangements that include services if the software is essential to the functionality of those services. Update 2009-14 becomes effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. An entity may elect to adopt the standard on a retrospective basis. We expect to apply this standard on a prospective basis beginning April 1, 2011. Management has determined that the update will not have a material impact on the consolidated financial statements.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

This Annual Report on Form 10-K contains or incorporates by reference certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future results of our operations, such as, but not limited to, statements relating to EBITDA or Adjusted EBITDA growth, the expected revenue of new bookstores we are operating, expanding sales on the internet, continued growth of the market for new and used textbooks, the increase of student enrollment in colleges, expected growth or changes in certain segments, volume or revenue growth, our ability to extend, refinance or repay our indebtedness, expressions of general optimism or pessimism about the future, and statements preceded by, followed by or that include the words “may,” “believes,” “expects,” “feels,” “anticipates,” or the negation thereof, or similar expressions, which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). These forward-looking statements, for which we claim the protection of the safe harbor contained in the Reform Act, involve risks, uncertainties and other factors which may cause the actual performance or our achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Several important factors could affect our future results and could cause those results to differ materially from those expressed in the forward-looking statements contained herein. These factors include, but are not limited to, the following: (1) the risks of operating with a substantial level of indebtedness including possible increases in our costs of borrowing, our inability to pay interest as it comes due, repay debt, extend or refinance debt as it matures, and obtain additional financing, and the possibility that the maturity of our credit facility may be accelerated and that cash flow will be diverted away from operations; (2) increased competition from other companies that target our markets; (3) increased competition from alternative media and alternative sources of textbooks for students, including digital or other educational content sold or rented directly to students and increased competition for the purchase and sale of used textbooks from student-to-student transactions; (4) further deterioration in the economy and credit markets, a decline in consumer spending, and/or changes in general economic conditions in the markets in which we compete or may compete; (5) our inability to successfully start-up, acquire or contract-manage additional bookstores or to integrate those additional bookstores and/or to cost-effectively maintain our current contract-managed bookstores; (6) our inability to purchase a sufficient supply of used textbooks; (7) changes in pricing of new and/or used textbooks or in publisher practices regarding new editions and materials packaged with new textbooks; (8) the loss or retirement of key members of management; (9) the impact of seasonality of the wholesale and bookstore operations; (10) further goodwill impairment or impairment of identifiable intangibles resulting in a non-cash write down of goodwill or identifiable intangibles; and other risks detailed in our SEC filings, in particular in this Annual Report on Form 10-K, all of which are difficult or impossible to predict accurately and many of which are beyond our control. We will not undertake and specifically decline any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our primary market risk exposure is, and is expected to continue to be, fluctuation in interest rates. Our exposure to market risk for changes in interest rates relates to our short-term investments and borrowings under the ABL Facility. All of our long-term debt that would have exposed us to market risk due to fluctuations in variable interest rates has been paid in full. Exposure to interest rate fluctuations for our long-term debt is managed by maintaining fixed interest rate debt (primarily the Senior Subordinated Notes and the Senior Secured Notes). Because we pay fixed interest coupons on our notes, market fluctuations do not impact our debt interest payments. However, the fair value of our notes fluctuates as a result of changes in market interest rates, changes in our credit worthiness, and changes in the overall credit market.

The following table presents quantitative information about our market risk sensitive instruments, which include the Senior Subordinated Notes, the Senior Secured Notes, capital lease obligations, and other long-term debt:

		Fixed Rate Debt
						Weighted-
						Average
		Principal				Interest
		Cash Flows (1)				Rate
Fiscal Year Ended March 31:
2011		$	900,456				9.36	%
2012			375,649,664				9.35	%
2013			461,247				8.63	%
2014			402,190				8.46	%
2015			273,739				8.29	%
Thereafter			777,450				8.29	%
Total		$	378,464,746				9.35	%
Fair Value		$	372,317,000				—

Certain quantitative market risk disclosures have changed since March 31, 2009 as a result of the payment in full of the Term Loan and our issuance of the Senior Secured Notes, market fluctuations, movement in interest rates, and principal payments. The following table presents summarized market risk information (the weighted-average variable rates are based on implied forward rates in the yield curve as of the date presented):

		March 31,				March 31,
		2010				2009
Carrying Values:
Instruments entered into for purposes other than trading:		$	—			$	4,999,319
Cash equivalents (treasury notes)
Fixed rate debt			377,624,262				179,334,183
Variable rate debt			—				193,076,346
Fair Values:
Instruments entered into for purposes other than trading:
Cash equivalents (treasury notes)		$	—			$	4,999,319
Fixed rate debt			372,317,000				90,367,000
Variable rate debt			—				160,253,000
Overall Weighted-Average Interest Rates:
Cash equivalents (treasury notes)			—				0.07	%
Fixed rate debt			9.35	%			8.63	%
Variable rate debt			—				9.25	%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements of Nebraska Book Company, Inc.

Report of Independent Registered Public Accounting Firm			42
Consolidated Balance Sheets as of March 31, 2010 and March 31, 2009			43
Consolidated Statements of Operations for the Years Ended March 31, 2010, 2009 and 2008			44
Consolidated Statements of Stockholder’s Equity for the Years Ended March 31, 2010, 2009 and 2008			45
Consolidated Statements of Cash Flows for the Years Ended March 31, 2010, 2009 and 2008			46
Notes to Consolidated Financial Statements			47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of
Nebraska Book Company, Inc.
Lincoln, Nebraska

We have audited the accompanying consolidated balance sheets of Nebraska Book Company, Inc. (a wholly-owned subsidiary of NBC Acquisition Corp.) and subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of operations, stockholder’s equity, and cash flows for each of the three years in the period ended March 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Nebraska Book Company, Inc. and subsidiaries as of March 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Omaha, Nebraska
June 25, 2010

NEBRASKA BOOK COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

		March 31,				March 31,
		2010				2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	60,972,625			$	44,038,468
Receivables, net			57,987,794				61,301,636
Inventories			97,497,689				93,115,663
Recoverable income taxes			2,435,287				2,869,583
Deferred income taxes			6,247,559				6,581,802
Prepaid expenses and other assets			4,070,281				3,950,874
Total current assets			229,211,235				211,858,026
PROPERTY AND EQUIPMENT, net of depreciation & amortization			42,155,424				45,638,522
GOODWILL			215,571,126				215,436,126
CUSTOMER RELATIONSHIPS, net of amortization			79,902,820				85,644,340
TRADENAME			31,320,000				31,320,000
OTHER IDENTIFIABLE INTANGIBLES, net of amortization			5,295,324				9,172,622
DEBT ISSUE COSTS, net of amortization			9,198,683				6,875,122
OTHER ASSETS			2,850,632				2,121,949
		$	615,505,244			$	608,066,707
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable		$	26,387,040			$	26,865,614
Accrued employee compensation and benefits			9,401,468				13,780,209
Accrued interest			7,295,709				678,516
Accrued incentives			6,313,933				6,110,700
Accrued expenses			9,051,651				4,277,105
Deferred revenue			1,299,960				959,274
Current maturities of long-term debt			54,403				6,917,451
Current maturities of capital lease obligations			846,053				748,692
Total current liabilities			60,650,217				60,337,561
LONG-TERM DEBT, net of current maturities			374,343,069				361,445,728
CAPITAL LEASE OBLIGATIONS, net of current maturities			2,380,737				3,298,658
OTHER LONG-TERM LIABILITIES			2,278,963				5,304,166
DEFERRED INCOME TAXES			50,467,019				54,313,459
DUE TO PARENT			23,194,711				20,130,189
COMMITMENTS (Note I)
STOCKHOLDER’S EQUITY:
Common stock, voting, authorized 50,000 shares of $1.00 par value; issued and outstanding 100 shares			100				100
Additional paid-in capital			148,197,307				148,135,923
Accumulated Deficit			(46,006,879	)			(44,899,077	)
Total stockholder’s equity			102,190,528				103,236,946
		$	615,505,244			$	608,066,707

See notes to consolidated financial statements.

NEBRASKA BOOK COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended				Year Ended				Year Ended
		March 31,				March 31,				March 31,
		2010				2009				2008
REVENUES, net of returns		$	605,493,613			$	610,716,181			$	581,247,786
COSTS OF SALES (exclusive of depreciation shown below)			370,195,916				371,369,240				354,139,474
Gross profit			235,297,697				239,346,941				227,108,312
OPERATING EXPENSES:
Selling, general and administrative			161,858,274				168,314,611				157,193,426
Closure of California Warehouse			—				—				(36,057	)
Depreciation			8,517,004				7,602,631				7,208,504
Amortization			10,853,248				11,384,020				10,443,335
Goodwill impairment			—				106,972,000				—
			181,228,526				294,273,262				174,809,208
INCOME (LOSS) FROM OPERATIONS			54,069,171				(54,926,321	)			52,299,104
OTHER EXPENSES (INCOME):
Interest expense			40,679,829				32,878,225				33,559,239
Interest income			(180,709	)			(426,536	)			(1,332,497	)
Loss on early extinguishment of debt			3,065,759				—				—
Loss on derivative financial instrument			—				102,000				198,000
			43,564,879				32,553,689				32,424,742
INCOME (LOSS) BEFORE INCOME TAXES			10,504,292				(87,480,010	)			19,874,362
INCOME TAX EXPENSE			3,142,094				7,448,658				7,418,339
NET INCOME (LOSS)		$	7,362,198			$	(94,928,668	)		$	12,456,023

See notes to consolidated financial statements.

NEBRASKA BOOK COMPANY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

										Retained				Accumulated
						Additional				Earnings				Other
		Common				Paid-in				(Accumulated				Comprehensive								Comprehensive
		Stock				Capital				Deficit)				Income (Loss)				Total				Income (Loss)
BALANCE, April 1, 2007		$	100			$	138,017,229			$	46,043,568			$	613,000			$	184,673,897
Contributed capital			—				(13	)			—				—				(13	)		$	—
Net income			—				—				12,456,023				—				12,456,023				12,456,023
Share-based compensation attributable to NBC Holdings Corp. stock options			—				70,489				—				—				70,489				—
Other comprehensive loss, net of taxes:
Unrealized loss on interest rate swap agreement, net of taxes of $861,000			—				—				—				(1,361,000	)			(1,361,000	)			(1,361,000	)
BALANCE, March 31, 2008			100				138,087,705				58,499,591				(748,000	)			195,839,396			$	11,095,023
Contributed capital			—				10,004,802				—				—				10,004,802			$	—
Net loss			—				—				(94,928,668	)			—				(94,928,668	)			(94,928,668	)
Share-based compensation attributable to NBC Holdings Corp. stock options			—				43,416				—				—				43,416				—
Dividends declared			—								(8,470,000	)			—				(8,470,000	)			—
Other comprehensive loss, net of taxes:
Unrealized gain on interest rate swap agreement, net of taxes of $473,000			—				—				—				748,000				748,000				748,000
BALANCE, March 31, 2009			100				148,135,923				(44,899,077	)			—				103,236,946			$	(94,180,668	)
Contributed capital			—				(40	)			—				—				(40	)		$	—
Net income			—				—				7,362,198				—				7,362,198				7,362,198
Share-based compensation attributable to NBC Holdings Corp. stock options			—				61,424				—				—				61,424				—
Dividends declared			—				—				(8,470,000	)			—				(8,470,000	)			—
BALANCE, March 31, 2010		$	100			$	148,197,307			$	(46,006,879	)		$	—			$	102,190,528			$	7,362,198